SBI likely to defer proposed rights issue after `3,000cr infusion by government :: Angel Broking,

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SBI likely to defer proposed rights issue after `3,000cr infusion by government
According to news reports, SBI is likely to receive a `3,000cr capital infusion from the
government to shore up its capital adequacy. The `3,000cr infusion is likely to come from
the `6,000cr set aside by the government for bank capitalisation in FY2012, and hence
will not have an impact on the fiscal deficit. The bank in consideration of the capital
infusion, will likely have to defer its `15,000-`20,000cr rights issue plan.
As of 1QFY2012 SBI's tier-I capital adequacy ratio was amongst lowest in the peer group
at 7.6% (not including 1QFY2012 profits). According to our calculations based on August
26, 2011 as the relevant date, the issue price as per SEBI norms for pricing of preferential
issues comes to `2,473 which is substantially higher than the CMP. If the infusion happens
at `2,473, the Government’s stake is likely to increase to 60.2% from existing 59.4%
thereby creating further cushion for dilution in future. The equity dilution is likely to be
lower than 2%. Post the infusion the tier-I CAR is likely to inch up to 8.0%, which will be still
lower than peers. In our view, any such amount is not going to be enough. Since the
government has not made adequate provisions, this will just be a stop-gap arrangement to
help it in the near term.
Post the recent sharp correction across-the-board and especially in banking stocks, SBI is
trading at attractive valuations of 1.1x FY2013E ABV (after adjusting for subsidiaries). We
maintain our Buy recommendation on the stock.