The upcoming initial public offering (IPO) of Tuticorin-headquartered Tamilnad Mercantile Bank is in the hands of Securities Appellate Tribunal (SAT). The minority shareholders of century-old private sector lender have approached the tribunal against the public issue.
Three out of the six foreign investors (Robert and Ardis James Co, East River Holdings Ltd, and Swiss Re Investors - Mauritius) have asked for a stay on the IPO. The matter would be heard today by the SAT.
What is the issue?
The private lender had initially planned an offer for sale (OFS) and fresh issuance of shares while filing the draft red herring prospectus (DRHP) in September 2021.
Then, Tamilnad Mercantile Bank had scrapped the OFS plan and went ahead with the proposal of IPO rollout.
Some of its investors argued the move to scrap the OFS and apparently asked it to file a fresh draft proposal with market regulator SEBI. SEBI, however, didn't order the bank to file a new DRHP and allowed it to proceed with its public issue.
After that, three of its foreign investors knocked on the SAT doors.
Why the IPO is important for the private lender?
The bank management said as much as 37.73 per cent or 53.76 million shares of its equity shares are under various legal and regulatory disputes. It is also under probe by the Reserve Bank of India (RBI) and the Enforcement Directorate. Any negative outcomes would be costly for the bank and its shareholders, the management added.
It can be noted that the private bank had missed the December 2021 deadline set by the RBI for the IPO, which then led to the bank being barred from expansion and curbs on its key management personnel.
IPO price band:
Tamilnad Mercantile Bank has fixed the IPO price band at Rs 500-525 per share for the Rs 832 crore initial share offer that would open between September 5 and September 7.
The bank would be issuing 1.58 crore new equity shares of Rs 10 face value in the IPO, which constitute 10 per cent of its equity shares.
Tamilnad Mercantile Bank doesn't come under the SEBI norm of 25 per cent minimum public shareholding as it is already fully owned by shareholders.
All of the six foreign shareholders -- Robert & Ardis James Company (4.95 per cent), Starship Equity Holdings (4.72 per cent), Subcontinental Equities (4.64 per cent), East River Holdings (3.72 per cent), Swiss Re Investors Mauritius (1.90 per cent) and FI Invest Mauritius (1.48 per cent) -- would have to retain their holdings for the next six months after the IPO.
Grey market premium:
Market participants said the Tamilnad Mercantile Bank IPO grey market premium (GMP) today is at Rs 30. It implies that the grey market is expecting the lender to list around Rs 555 (Rs 525 + Rs 30), which is around 5.71 per cent higher from the IPO's upper band price of Rs 525 per equity share.
"The lender has posted a compelling growth in its top and bottom line. The NPAs (non-performing assets) of the bank also look controlled as compared to its peers. It recorded NIMs (net interest margin) of 4.10 per cent in FY22 (2021-22), which too is commendable. The IPO is priced at P/BV (price to book value) of 1.4 times, which looks moderate," Manan Doshi of UnlistedArena.com told Business Today.
Tamilnad Mercantile Bank is one of the oldest private sector banks, with a history of 101 years. It was established in 1921 as Nadar Bank and assumed the present name in 1962.
The bank has reserved 75 per cent of the issue for qualified institutional investors, 15 per cent for non-institutional investors and the remaining 10 per cent for retail investors.
It reported a net income of Rs 8,212 crore in fiscal 2022. The bank operates 509 branches, of which 369 are in Tamil Nadu.
Axis Capital, Motilal Oswal Investment Advisors and SBI Capital Markets are the book-running lead managers for the public issue.
The equity shares are expected to list on September 15.
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