NSE IPO could turn SBI's ₹2cr bet into nearly ₹5,000cr
What's the story
The State Bank of India (SBI), India's largest lender, is poised to make a massive profit from its investment in the National Stock Exchange (NSE). If NSE's upcoming initial public offering (IPO) is priced at ₹2,000 per share, SBI's shares could be worth nearly ₹4,950 crore. The estimate comes from disclosures in NSE's draft red herring prospectus.
Share details
SBI plans to divest 2.475 crore shares
SBI plans to divest 2.475 crore shares through the offer for sale. The lender's weighted average acquisition cost is just ₹0.8 per share, owing to decades of share issuances, bonus allotments, and capital restructuring. At an assumed IPO price of ₹2,000 per share, the stake being sold would be worth nearly ₹4,950 crore—implying a notional gain of about ₹4,948 crore for SBI.
Additional gains
Other public sector investors also set to gain significantly
The potential gains from NSE's IPO aren't limited to SBI. Several other public sector institutions that had invested in NSE during their early years are also sitting on massive returns. For instance, Bank of Baroda plans to sell shares worth about ₹2,197 crore. The acquisition cost of those shares is around ₹59 lakh. Stock Holding Corporation of India Ltd., which bought its shares at ₹0.46 each, could monetize holdings worth about ₹2,178 crore against an investment of roughly ₹50 lakh.
Insurance sector
Insurance sector in line for big gains as well
The insurance sector is also in line for big gains from NSE's IPO. The New India Assurance Company and National Insurance Company acquired their shares at a weighted average cost of just ₹0.32 each. At the assumed IPO price, the shares being offered by New India Assurance would be worth around ₹2,100 crore while National Insurance's stake would fetch nearly ₹1,200 crore. United India Insurance Company, whose acquisition cost was ₹0.5 per share, would similarly sell shares worth ₹1,200 crore.
High-cost investments
Foreign investors also set to benefit despite higher entry prices
Even investors with higher acquisition costs stand to make big profits from NSE's IPO. The General Insurance Corporation of India, which has a weighted average acquisition cost of ₹5.26 per share, would monetize shares worth over ₹2,131 crore against an investment of around ₹5.6 crore. Foreign investors such as MS Strategic (Mauritius) Ltd., Aranda Investments (Mauritius) Pte. Ltd., and Canada Pension Plan Investment Board also stand to gain despite their high entry prices due to the expected IPO valuation.