Federal Bank approves issuance of warrants of Rs 6,200 crore to Blackstone; stock 2%

Kerala-based private lender Federal Bank on Friday approved the issuance of convertible warrants worth Rs 6,196 crore to Asia II Topco XIII, a subsidiary of private equity giant Blackstone, sending its shares up as much as 2.2% to Rs 232.25 on the BSE.

The move positions Blackstone to acquire a nearly 10% stake in the bank, subject to shareholder approval, marking another high-profile private equity inflow into mid-market Indian lenders this year.

The Federal Bank board approved warrants of Rs 27.29 crore, each convertible into one fully paid equity share at Rs 227 each, roughly in line with Thursday’s closing price.

Blackstone is obligated to pay 25% of the warrant price upon subscription, while the remaining 75% is payable upon exercise of the warrants. Upon conversion, Blackstone will own a 9.99% stake and will have the right to nominate one non-executive director to the bank’s board of directors, provided his stake remains above 5% of the total paid-up share capital.

Strengthening capital amid PE inflows

The bank enters into this deal with solid capital figures. As of the September quarter, the Federal Bank reported a capital-risk-weighted asset ratio of 15.71% and a Tier-1 capital ratio of 14.37%, well above regulatory thresholds of 9% and 6%, respectively. The credit-deposit ratio was 84.7%.

The decision also comes amid a wave of large private equity investments in mid-sized Indian banks. Last week, Emirates NBD announced plans to invest nearly Rs 27,000 crore in RBL Bank for a stake of up to 60%. Earlier this year, Japan’s Sumitomo Mitsui Banking Corporation acquired more than 20% in Yes Bank, while a subsidiary of Warburg Pincus took a 9.48% stake in IDFC First Bank.

Federal Bank shares are up 18.5% in the past month and are up 14% this year. From a technical perspective, the stock is trading above all eight major simple moving averages, including 5-day through 200-day SMAs, indicating strong bullish momentum.

The Relative Strength Index stands at 80, indicating the stock is in overbought territory, while the Moving Average Convergence Divergence of 7.7, above the center and signal lines, reinforces the ongoing positive trend.

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