Bank of Baroda shares soar over 6% on government’s Rs 5,000 crore capital infusion

Bank of Baroda shares surged more than 6% after it announced that the government has decided to infuse Rs 5,042 crore as capital into the PSU bank ahead of its merger with two other public sector lenders Dena Bank and Vijaya Bank.

The capital infusion will be by way of preferential allotment of equity shares (special securities/bonds) of the bank in the form of the government investment during FY19, which is coming to an end this week, BoB said in a regulatory filing.

The government has so far infused Rs 1,00,958 crore into PSBs this financial year. In February, it had infused Rs 48,239 crore out of the total Rs 1.06 lakh crore earmarked for this year in 12 state-run banks. While announcing about the capital infusion last month, banking secretary Rajiv Kumar in February had said pending amount of  Rs 5,000 crore may be used for any contingency or for growth capital wherever it is necessary, including the amalgamated entity of Bank of Baroda.

As for the upcoming PSU bank merger of Bank of Baroda, shareholders of Vijaya Bank will get 402 equity shares of BoB for every 1,000 shares held and Dena Bank’s shareholders will get 110 shares for every 1,000 shares of BoB.

The government had announced about BoB merger with Vijaya Bank and Dena Bank in the month of September last year to create the third largest lender in India after State Bank of India and ICICI Bank. The merger would be effective from April 1.

According to the media reports, Bank of Baroda is also planning to raise up to $1 billion by selling bonds overseas to strengthen its capital position ahead of an anticipated increase in credit demand. The bond sale is likely to open for subscription before the end of this financial year on March 31.

Global rating agency Fitch Ratings has assigned an expected rating of ‘BBB-(EXP)’ to Bank of Baroda’s proposed senior unsecured notes, which will be issued by the bank’s London branch.

According to the rating agency, the proposed notes will constitute the bank’s direct, unconditional, unsubordinated and unsecured obligations and will at all times rank pari passu among themselves and with all of the bank’s other unsubordinated and unsecured obligations.

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