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FIIs pay premium for SBI shares

Virendra Verma

MUMBAI, Jan. 30

EVEN as the Government is contemplating increasing the foreign investors' holding in State Bank of India (SBI), foreign institutional investors (FIIs) are paying premium to the ruling market price to buy shares of the country's largest bank.

A look at the trading pattern in SBI shares between November 2002 and January 2003 on BSE shows that the FIIs are paying premium ranging from 0.5 per cent to 5.7 per cent.

The FIIs are buying shares on BSE's special trading segment within the exchange's BOLT system. Under this segment, any investor can sell the shares but only FIIs can buy the shares, dealers at top broking firm said.

Stockbrokers said the FIIs are willing to pay a premium for SBI shares because of the limited head room left for foreign investors for buying shares. Another reason for high premium is on hopes that the Government may increase the foreign investment limit in SBI.

The premium goes higher with the increase in the quantity to be purchased and vice-versa, dealers said.

However, the premium does not exist for other companies' shares where there is limited head room. For instance, Bharti Televentures, which has 47 per cent foreign investment, has head room for additional two per cent but there is no premium in the special trading segment. In fact, trading in the Bharti Televentures takes place at the ruling market price.

By the end of December 2002, the foreign holding in SBI was 19.84 per cent, including 7.89 per cent of GDRs. The holding increased from 19.77 per cent by end of September 2002. As per the RBI rules, foreign investment in the bank can go up to 20 per cent.

Based on the latest shareholding pattern of SBI, FIIs can buy additional 8,67,823 shares from the market. The paid-up capital of SBI is Rs 526.29 crore, comprising 52.62 crore shares of Rs 10 each. Brokers said the premium has gone up over the last couple of months following the active interest of the market towards banking sector stocks. They said since SBI is the largest bank in the counter with market shares of over 30 per cent, all FIIs are willing to pay premium over the market price.

Despite the purchase of shares by FIIs at a premium, there has been no significant rise in the price of SBI since November 2002. The stock price has increased from Rs 238.20 on November 1, 2002 to today's closing price of Rs 283.45, a rise of 19 per cent. In comparison stock price of other public sector banks have increased between 30 and 100 per cent.

Brokers said the Government is likely to increase the foreign investment limit in public sector banks from 20 per cent to higher levels. The market expectations are that the foreign investment would be brought at par with that of private sector banks where the investment limit is 49 per cent. In today's trading, the premium paid by FIIs was the highest in the SBI stock. In the normal trading segment of BSE, SBI stock closed at Rs 279.85 and in comparison, the stock in the FII segment closed at Rs 299.50, that is a premium of 7.02 per cent to the normal market.

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