Canara Bank plans to raise up to Rs 5,000 crore by end of first half of FY19

Canara Bank plans to raise up to Rs 5,000 crore from the market and by selling its non-core assets through two of its subsidiaries after it called off the divestment process of its 30 percent stake in its housing finance subsidiary Can Fin Homes.

“We have approval to raise about Rs 4,500 crore which we got last year (February 2018). We will try to raise before July…We also have monetisation plan by selling our stake in Canbank Factors Ltd (70 percent stake) and Canbank Computers Ltd (69 percent stake) and other non-core assets to the tune of Rs 200-225 crore,” Rakesh Sharma, chief executive officer and managing director of Canara Bank, told analysts at a meeting on Tuesday.

In February, the Karnataka-based public sector lender had received approval from its Board to raise up to Rs 4,500 crore over and above the government’s capital infusion plans, through issuance of shares to investors, including foreign institutional investors (FIIs), qualified institutional buyers (QIBs) or non-resident Indians (NRIs).

“It seems the bank will raise it partially through equity dilution and some through raising Tier-1 bonds. If the entire is raised through equity, the dilution could be to the tune of 20-25 percent going by the current market capitalisation,” said an analyst.

In March end, Canara Bank had called off the stake sale in Can Fin Homes after bid offers by several interested entities were not in tune with the expected valuation.

Sharma said the offer was above market price but below our expectation as we have an 8-10 percent “management premium” which the bidders did not agree to.

“We have now posted a full-time deputy managing director to strengthen the company further, improve its performance, profitability and accordingly give value to the shareholders… Also, because we are sufficiently well capitalized, we do not have the urgency to sell off that subsidiary but will look at other smaller businesses,” Sharma further elaborated.

In the January to march quarter, Can Fin Homes had reported a 6 percent increase in net profit at Rs 75 crore against Rs 71 crore in the year ago quarter when the profit had risen by 28.5 percent.

Media reports had earlier suggested that largest private housing finance player HDFC and other private equity players such as Baring Private Equity Asia were in the race to buy the entire stake in the Canara Bank arm.

Last week, the state-owned lender had posted a net loss of Rs 4,860 crore for the fourth quarter ending March 2018 due to three-fold rise in provisions towards non-performing assets (NPAs) or bad loans.

Despite the provisions, its capital adequacy ratio (CAR) improved to 13.22 percent, up from 12.86 percent a year ago.