Canara Bank To Sell Stake In Two Subsidiaries In A Bid To Raise Capital

Canara Bank rose as much as 1.6 percent after it announced plans to dilute stake in its subsidiaries Can Fin Homes Ltd. and Canbank Factors Ltd.

The government-owned lender will sell 13.45 percent stake in Can Fin Homes, bringing its stake down to 30 percent, it said in a notification to the exchanges. The sale could fetch Canara Bank approximately Rs 584 crore, as per BloombergQuint's calculations.

The bank will also divest 70 percent stake in Canbank Factors, an unlisted subsidiary. Incorporated in 1991, Canbank Factors does invoice discounting, sales ledger administration, debt collection, and advisory services. Small Industries Development Bank of India (SIDBI) and Andhra Bank own the remaining 30 percent stake.

Canbank Factors has 13 branches in India and has the highest CRISIL rating of A1+ for its short term debt programme. It reported a Rs 2.2 crore net profit and turnover of Rs 3,119 crore in financial year 2015-16. The company had an asset base of Rs 831 crore at the end of March 31, 2016.

Stake Sales Rationale

The stake sales will boost Canara Bank's capital adequacy ratio, which stood at 12.19 percent as on September 30, 2016. The bank's net profit declined 32.5 percent to Rs 357 crore in the July to September quarter, while net interest income fell 7.7 percent to Rs 2,442.4 crore.

54 percent of the analysts tracked by Bloomberg have a ‘sell' rating on the stock with a 12-month target price of Rs 273 apiece.

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