Shares of Axis Bank and financial sector companies rose on Tuesday amid speculation Kotak Mahindra Bank might announce a possible merger or acquisition.
Kotak Mahindra Bank, which has a scheduled board meeting on March 30, said after market hours on Monday that vice chairman and managing director Uday Kotak would hold a media briefing on March 29.
Stocks of non-banking financial companies (NBFCs) advanced on the BSE with M&M Financial Services gaining 2.8%, Shriram Transport Finance climbing 5.3% and Edelweiss Financial Services surging 6.3%. Axis Bank — which has been the subject of speculation about a possible merger with Kotak Mahindra Bank — added 3.2%, while Kotak Mahindra Bank slid 1.3%.
On Monday, the fourth-largest private sector lender informed stock exchanges that its board would consider all options for raising equity capital including private placement, QIP, GDR/ADR and rights issues. As mandated by the RBI, Mr. Kotak needs to gradually pare his promoter’s stake in the bank to 15% by March 31, 2020, from about 32% now.
“We believe the deadline can be met by further sales,” JPMorgan wrote in a research note, adding that the bank would consider raising further capital “only if it were accretive.”
“The RBI has set deadlines for its principle shareholder, Uday Kotak, to reduce stake,” JP Morgan said in a note to its clients.
“He (Mr Kotak) sold 1.5% stake in the bank on 8 March and currently holds 31.8%. We believe the deadline can be met by further sales - management would proceed with cap raise only if it were accretive. KMB’s market cap is $24 billion and the promoter’s stake need to halve from the current levels, so a cap-raise would probably be a minuscule step toward meeting this deadline,” according to the note.
It is also speculated that the Kotak Bank may announce acquisition of a stake in a non-banking finance company.
“We do not comment on rumours and speculation,” a Kotak Mahindra Bank spokesperson said.
