Union Bank of India Eying QIP Mode To Raise Funds

The bank is planning to use Qualified Institutional Placement (QIP) route to raise funds, which involves issue of equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares.

The move of the bank is motivated to strengthen the capital adequacy ratio and discount the current market sentiments, as UBI stock has performed well in last one month. The bank’s stock has recorded more than 43% of growth in last one month and expected to further perform well. This means that the bank will have to issue less number of shares to raise the same fund what they had to issue one month earlier. This result in comparatively (if the bank raises the fund a month earlier) better earnings per share and Book Value per share for the bank.

Moreover, capital adequacy ratio of the bank stood at 10.80% as on 31 March, 2014 the under Basel III with tier I capital of 7.54% and tier II capital of 3.26% which is below the required capital adequacy ratio under the said norms. According to the chairman and managing director of UBI, Arun Tiwari, “Post fund raising, capital adequacy of the bank should improve by 50 basis points.”

In today’s trading session the stock has recorded 6.33% of growth over its previous closing price. At CMP the bank is trading at 0.76 times of its book value.