Shares of Kotak Mahindra Bank Ltd dropped as much as 3.3 per cent to Rs 1,250.60, their lowest since May 24.
The Reserve Bank of India has rejected Kotak Mahindra Bank’s move to dilute promoter shareholding by allotting preferential shares.
“The RBI communicated to us today that our perpetual non-cumulative preference shares issuance does not meet their promoter holding dilution requirement,” Kotak Mahindra Bank had said in a regulatory filing on Tuesday. “We continue to believe that we have met the requirement and will engage with the RBI in this behalf,” it added.
According to sources, the bank may have to look for other ways to dilute the promoter holding. Kotak Mahindra Bank says it continues to believe that it has met the requirement and will engage with RBI on the same.
Earlier this month, Kotak Mahindra Bank had approved private placement of PNCPS for up to Rs 500 crore ($71.19 mln) to cut the bank founders' stake below 20 per cent as per RBI mandate. Uday Kotak, Asia's richest banker who heads Kotak Mahindra, is further required to lower his holding to 15 per cent by March 31, 2020.
Jefferies says Kotak's stance on its step and method even in the face of RBI's rejection and, playing in public forum, is unusual and unheard of, It has kept 'underperform' rating and a price target of of Rs 1,100.
“Expects Kotak to engage in close-door negotiations. If there's no resolution, overhang of a large share sale exists and is a potential negative. Valuation multiples are ridiculously expensive vs the underlying profitability,’’ it says.
Goldman Sachs says RBI may potentially be setting a precedent with this decision. RBI rejection could impact the stock in near-to-medium term. It has kept 'buy' rating with a price target of Rs 1,506.
Citi says Kotak may choose to either raise primary capital or promoter may elect to sell part of the holding in the secondary market or may consider a meaningful acquisition. The brokerage has kept 'buy' rating with a price target of Rs 1,565.
Morgan Stanley says unless approved by RBI, it would be a slight negative as overhang of significant equity supply would increase. It has maintained 'overweight' with a price target of Rs 1,435.
“Another potential solution could be to look for sizeable inorganic growth opportunities. While promoter holdings could also be reduced via equity capital raising, it is unlikely given its good capital position,’’ Morgan Stanley says.
Kotak Bank stock had gone up about 28 per cent this year as of last close. About 27 of 36 brokerages have rated the stock “buy” or higher, 5 “hold” and 4 “sell” or lower; their median price target is Rs 1,428.