* Falls short of $1.5 bln target in equity sale
* Issue priced at 1,565 rupees, low end of indicative band
* Rate hike, state banks' asset quality worries hit demand
(Adds shares sale details, comments)
By Sumeet Chatterjee
MUMBAI, Jan 29 State Bank of India
raised $1.2 billion through a share sale, sources with direct
knowledge of the deal said, falling short of its $1.5 billion
target and clouding the outlook for equity offerings by other
banks in a slowing economy.
India's biggest lender, which accounts for a quarter of the
country's loans and deposits, plans to use the proceeds to boost
its domestic and overseas banking operations.
Investors, both foreigners and domestic, bought roughly 50
million shares out of nearly 59 million on offer at 1,565 rupees
($24.98) each, the lower end of the price band, the sources said
Demand for SBI shares, particularly from foreign investors,
was not strong because of concerns about the bank's asset
quality and earnings growth as an economic slowdown curbs demand
for loans, three sources with direct knowledge of the situation
Indian banks, mainly state-run such as SBI and Punjab
National Bank with high exposure to the power and
infrastructure sectors, have seen a sharp surge in bad loans in
the past couple of years.
The Indian central bank's surprise move on Tuesday to raise
policy interest rates by a quarter percentage point to 8.00
percent also dented investor demand for SBI shares, the sources
Foreign investors, typically the biggest buyers of Indian
shares in such offerings, bought about $250 million in SBI
shares, while state financial institutions including Life
Insurance Corp of India Ltd were the biggest buyers, the sources
"The timing of the issue was not right. The overall market
sentiment turned weak in the last few days, and the rate hike by
the central bank is also negative for banks," said Jagannadham
Thunuguntla, chief strategist at SMC Global Securities.
"State-run banks have not been on the investors' radar for
quite some time due to asset quality worries," he said. "This
will now put pressure on the government to infuse more capital
into the public sector banks."
In September, Moody's Investors Service downgraded its
rating of SBI's senior unsecured debt to Baa3, the lowest
investment-grade rating, from Baa2. It changed its outlook on
SBI's financial strength to 'negative' from 'stable', citing
worsening asset quality and dependence on a fiscally strapped
government to maintain its capital base.
CAP ON INVESTORS
A recent directive by the market regulator to cap the
allotment of shares to a maximum of 49 institutional investors
in an equity offering also contributed to SBI's falling short of
its target, two separate sources with direct knowledge said.
All the sources declined to be identified ahead of a public
announcement. SBI Chairwoman Arundhati Bhattacharya could not
immediately be reached for comment.
A large number of Indian companies including state banks
have delayed their share sales due to poor investor sentiment
and sluggish corporate earnings growth.
India's main stock market index is down 2.5 percent
this year. SBI stock lost more than a quarter of its market
value in 2013 and is down nearly 11 percent this year.
Citigroup, HSBC, JPMorgan, Bank of
America Merrill Lynch, Deutsche Bank, UBS AG
and SBI Capital, the investment banking unit of State
Bank of India, managed the SBI offering.
($1 = 62.6550 Indian rupees)
(Reporting by Sumeet Chatterjee; Editing by Anupama Dwivedi and