Federal Bank to raise Rs 6,196 crore from Blackstone: Brokerages on financial effect & price target

Private sector lender Federal Bank on Friday said Blackstone, through its affiliate Asia II Topco XIII, will buy a 9.99 per cent stake in the bank by investing Rs 6,196.51 crore. InCred Equities said this fundraise would improve Common Equity Tier 1 (CET-1) ratio by 2.8% to 18%.This would lead to a FY27 book value increase of 4%. These funds are expected to boost return on assets by 7 bps.

Citi Research said post-conversion, FY28E networth is projected to increase 14%, book value accretion to exceed 2% in FY28. CET-1 is expected to rise by over 200 bps, return on assets (RoAs) to gain 5 bps, RoE to dilute by smaller than 1%, and EPS dilution to be 6%. Citi has maintained a price target of Rs 250 on the lender post fundraising announcement. 

Meanwhile, the investment will be carried out via the issue of up to 272.97 million warrants, each convertible into one fully paid-up equity share of face value Rs 2, at a price of Rs 227 per share, which includes a premium of Rs 225. The transaction, made on a private placement and preferential basis, is subject to regulatory and shareholder approval, bringing Blackstone into the growing list of foreign investors acquiring stakes in mid-sized Indian banks.

According to the bank's disclosure, the warrants have a tenor of 18 months from the date of allotment and may be exercised in one or more tranches. Blackstone is required to pay 25 per cent of the issue price upfront during subscription, with the balance 75 per cent payable upon conversion into equity shares. Should any warrants remain unexercised at the end of the 18-month period, they will lapse, and the amount paid on them will be forfeited.

Additionally, Federal Bank's board has approved a special right for Blackstone, allowing the private equity firm to nominate one retiring non-executive director to the bank's board after all warrants are exercised, provided Blackstone holds at least 5 per cent of the paid-up share capital at that time.