Uco to tap institutions for Rs 300 cr

Uco Bank today decided to raise between Rs 300 crore and Rs 325 crore by the end of this month by issuing perpetual non-cumulative preference shares to institutional investors.
The bank needs to augment its net owned capital to comply with Basel II norms from April this year and support business growth.
While a dividend is paid every year to preference shareholders, it does not become the first claim in perpetual non-cumulative preference shares.
Uco Bank has already proposed a capital restructuring plan, under which it wanted to convert part of the government’s Rs 600-crore equity (74.98 per cent) into preference shares and then come up with a follow-on public issue.
The government, however, is yet to give its final approval to the proposal, which prevents the bank from entering the capital market
“We are not pursuing the proposed public issue right now. The delay in the government decision and the current stock market conditions are not conducive for the issue. Therefore, we have decided to raise capital through perpetual non-cumulative preference shares, for which we have got shareholders’ approval at an extraordinary general meeting today,” said S.K. Goel, chairman and managing director of Uco Bank.
Goel said the bank had a headroom to raise Rs 625 crore through perpetual non-cumulative preference shares.
“Shareholders have unanimously approved mobilising the entire amount. However, we have decided to mop up between Rs 300 crore and Rs 325 crore before the end of this month,” Goel said.
“Earlier we considered saving this instrument for the future and launch a follow-on public offering to meet our capital requirement,” Goel said. But under the current situation, the bank reversed its position by putting its second public issue on hold until the stock markets stabilised.
The bank will raise only Rs 325 crore through perpetual non-cumulative preference shares because it plans to issue the remaining Rs 300-crore preference shares to the government once the government approves the bank’s capital restructuring plan.
Under the plan, the bank had proposed to convert Rs 300 crore of the government’s equity into preference shares.
Although the Reserve Bank of India approved the use of perpetual non-cumulative preference shares to expand the Tier I capital of banks, it announced a final guideline to raise money through this instrument in October last year.
The money raised through perpetual non-cumulative preference shares will raise Uco’s capital adequacy (Basel II compliant) ratio to around 11 per cent from 10.33 per cent as at the end of December 2007.