Private sector lender Federal Bank led by MD & CEO Shyam Srinivasan has picked investment banks Kotak Mahindra Capital, Axis Capital, BofA Securities and JP Morgan as advisors as the firm gears up for a big-bang fund raising exercise in which it seeks to mop up upto Rs 4,000 crore, multiple industry sources in the know told Moneycontrol.
The proposed capital raise aimed at bolstering retail growth and inorganic activity is likely to be executed via a combination of the QIP and preferential allotment routes, these sources added.
“The deal is on and a clutch of 4 advisors, two domestic investment banks and two foreign investment banks, have been shortlisted,” said one of the persons above.
Two other persons also confirmed the syndicate of I-bankers.
“The exact quantum and contours haven’t been finalized as yet, but as of now the plan is to raise around Rs 3,000 cr via the QIP route and the balance via the pref route,” a fourth person told Moneycontrol.
All four persons above spoke to Moneycontrol on the condition of anonymity.
Moneycontrol is awaiting the response to an email query sent to Federal Bank and has sent reminders. Queries sent to Kotak Mahindra Capital, Axis Capital, BofA Securities and JP Morgan were also unanswered at the time of publishing this article.
This article will be updated as soon as we hear from the parties.
The Federal Bank Strategy
The Kochi, Kerala headquartered bank is backed by the World Bank’s investment arm IFC ( International Finance Corporation). In July 2021, Federal Bank saw a Rs 916 crore equity infusion by IFC which picked up a 4.99 percent stake.
It wasn’t immediately clear if IFC would participate in case the preferential allotment route was adopted by the lender.
In an interview to Bloomberg dated May 22, 2023, CEO Shyam Srinivasan said the lender planned to raise as much as $486 million in the next few months to support its expansion.
The fundraising could be via debt or equity, or a combination of the two, with the final structure still under consideration, Srinivasan told Bloomberg.
The capital will fund growth as Federal Bank pushes further into retail banking with plans to open about 100 branches this year, and seeks to buy a microfinance company, he added. The firm’s share price has increased by around 32 per cent in the last one year.
Federal Bank on May 5 reported net profit for the quarter ended March at Rs 902.61 crore, up 66.98 percent from Rs 540.54 crore recorded in the same quarter last year.
The brokerage arm of JP Morgan recently initiated coverage on the Federal Bank stock with an “overweight” call.
“The primary attraction of the stock is its relatively stronger liability franchise vs. mid-cap bank peer group in an environment of tight LDRs (loan-to-deposit ratios). This is offset against a lower ROA (return on asset) the bank earns given a conservative book. This is incrementally changing with faster growth planned in high ROA segments. However, these are also relatively new and credit untested segments,” it said.
On May 23, 2023, Moneycontrol reported that Aditya Birla Capital had held discussions to shortlist 4 investment banks, namely Jefferies, BofA Securities, ICICI Securities and Axis Capital for its next fund-raising exercise via the QIP (qualified institutional placement) route as the firm looks to scale up aggressively under CEO Vishakha Mulye who was roped in a year back.
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