The Centre’s Rs 5,473-crore capital infusion plan for Punjab National Bank (PNB) has suffered a dent following allegations of fraudulent transactions involving the state-owned lender and firms linked to billionaire Nirav Modi. On Thursday, PNB sought the shareholders’ approval to raise funds from the government at a per-share issue price of Rs 163.38, almost 44 per cent higher than its stocks’ closing price of Rs 113.50 on the National Stock Exchange on Friday.
The government equity infusion comes at a time when PNB’s stock has slumped following charges of Rs 11,400-crore worth of Letter of Undertaking (LoU) fraud by the bank. The value of the government’s fresh investment in PNB will take a significant knock, leading to notional diminution of Rs 1,670 crore due to the sharp difference in the issue price and the current price in the market, as on Friday.
The state-owned lender has called for an Extraordinary General Meeting (EGM) of shareholders on March 16 to seek their approval for preferential allotment of shares to the government. The bank, in a notice to stock exchanges, said it will issue 33.49 crore shares of face value Rs 2 each at a premium of Rs 161.38 per share to the government, to raise a total of Rs 5,473 crore.
PNB, in its notice, said it had arrived at the issue price for preferential allotment of shares as per the norms of the Securities and Exchange Board of India. As per SEBI rules, for companies listed on stock exchanges for 26 weeks or more, the preferential equity shares shall be allotted at a price not less than higher of these two — average of weekly high and low price of shares during 26 weeks preceding the relevant date; average of weekly high and low of the price of shares during two weeks preceding the date.
The preferential shares will have a lock-in of three years. After the allotment, the government’s stake in PNB will rise to 62.25 per cent from 57.04 at present. “All the equity shares to be issued and allotted to the Government of India shall be locked in for a period of three years from the date of trading approval,” the bank said in the notice.
On January 24, when the government had announced details of capital infusion plans for PNB along with 19 other PSBs, the shares of PNB had ended higher 5.19 per cent at Rs 195.45 on the NSE. Last month, the Centre had announced capital infusion of around Rs 1 lakh crore in the PSBs by March-end, comprising Rs 80,000 crore via recapitalisation bonds, Rs 8,139 crore through gross budgetary support and Rs 10,312 crore of funds raised from the market.
The shares of PNB has taken a hit on the exchanges since last Thursday after it announced that it detected fraudulent transactions to the tune of Rs 11,400 crore. Analysts noted that PNB may require an additional capital infusion from the government, in case it has to make an entire provision for the fraudulent transactions allegedly done by diamond traders Nirav Modi and Mehul Choksi.
PNB officials said the bank will make provisions for its liability in the next two quarter, which will adversely affect its profitability. Warning of a downgrade of its ratings on PNB on Tuesday, rating agency Moody’s Investors Service said due to the fraudulent transactions, the bank’s profitability will likely come under pressure, although the actual impact will depend on the timing and quantum of provisions that need to be made, as well as any prospects for recovery.
“The fraudulent transactions represent about 230 basis points of the bank’s risk-weighted assets as of December 31 2017. As such, PNB’s capital position would deteriorate markedly, and fall below minimum regulatory requirements, if the bank is required to provide for the entire exposure. Consequently, PNB may need to raise capital externally — mainly from the government — to comply with the minimum Basel III capital requirement of an 8% common equity tier 1 (CET1) ratio by 31 March 2019,” Moody’s said in its report.