SRINAGAR, AUG 29: Jammu & Kashmir administration has taken over the day-to-day media communication of the J&K Bank, which, otherwise, as a ‘semi-autonomous bank’, was handled by J&K Bank’s own communication department.
In a major break from the past practice, from the the last one month or so, J&K Bank’s press releases are part of J&K government’s daily media bulletin released by the Information Department. Earlier, J&K bank’s communication unit was responsible for generating and issuing media statements to the press.
Did J&K government’s preferential shareholding acquisition influence this decision?
This development comes after Security and Exchange Board of India (SEBI), in a special case, allowed the preferential allotment of J&K Bank’s shares to J&K government during this fiscal year, by virtue of which J&K government’s shareholding is all set to increase from 68.18 percent to 74.24 percent in the bank, virtually making it a state bank.
The latest media communication takeover is presumed to be an outcome of this process.
How SEBI helped change the shareholding structure
It may be recalled, earlier this month, markets regulator – SEBI – exempted the Jammu and Kashmir government from making an open offer to the shareholders of Jammu and Kashmir Bank following a proposed equity infusion that would hike the promoter’s stake, that is J&K government, by 6.06 percent in the bank.
The directive came after SEBI received an application from the bank, on behalf of its promoter, the Government of Jammu and Kashmir, seeking exemption from the open offer obligation arising under SAST (Substantial Acquisition of Shares and Takeovers) norms due to the proposed acquisition.
The government of Jammu & Kashmir is infusing a capital up to Rs 500 crore towards equity infusion or recapitalization of the bank against allotment of equity shares. The bank will allot 16,76,72,702 equity shares at Rs 29.82 apiece.
During the financial year 2021-22, post the preferential allotment, the proposed acquirer’s shareholding will increase from 68.18 percent to 74.24 percent i.e., a change of 6.06 percent, which is in excess of 5 percent of the equity paid-up capital of the bank, thereby attracting the provision of the Takeover Regulation.
Could this capital of Rs 500 crore have been raised from public?
Several former officials of the bank told Ziraat Times that if liquidity availability was a requirement, the same could have easily been raised from the public through a public offer. In other words, general public could have bought shares and contributed to the capital infusion of Rs 500 crore.
“There seems to have been a prior decision that this block should go to the J&K government itself, making it take over about 6% more stake in the bank, and, consequently, make it have a greater say in the management of the bank”, a senior former official said, preferring not to be named.
Another senior official expressed surprise that “at a time when letting private capital take majority stake in public sector institutions was in vogue, reverse has happened to J&K Bank”.
“It remains to be seen how much this will improve efficiency and effectiveness of the bank in an era when private banks and their business models offer stiff competition to public sector banks through this agile business models”, the official remarked.
How the decision was taken and announced
The announcement about this preferential stock buying was made after market hours on Friday, 4 June 2021, perhaps, anticipating that the share market would view the development negatively.
Earlier, the board of directors of Jammu & Kashmir Bank had approved raising of capital by issue of equity shares through preferential allotment to Government of Jammu & Kashmir, the promoter and majority shareholder of the bank, for an amount upto Rs.500 crore.
Will J&K Bank undergo a major legal and structural change?
In its order, Sebi said there will be no change in control of Jammu and Kashmir Bank following the proposed acquisition as the change will only be in the quantum of holding the shares by the government who in fact is the promoter of the bank and will remain promoter and entity in control of the lender.
The bank, pursuant to the completion of the proposed acquisition, will, however, remain compliant with the minimum public shareholding requirement of 25 percent. SEBI, further, said the infusion of additional capital by the government is stated to be utilized to improve the capital adequacy and to fund general business needs of the bank.
Accordingly, the regulator has granted “exemption to the proposed acquirer, viz., the Government of Jammu and Kashmir, from complying with the requirements of the Takeover Regulations with respect to the proposed acquisition of 6.06 percent equity shares in J&K Bank in 2021-22. “
With inputs from PTI