Mumbai: Yes Bank Ltd is recasting its capital-raising strategy, part of which involves abandoning its quest for big-ticket cheques in favour of relatively smaller and more frequent share sales.

While the private lender’s overall capital-raising target remains $2 billion, it now plans to raise the money in multiple tranches of around $400-500 million, two people directly aware of Yes Bank’s latest strategy said on condition of anonymity.

This is a departure from the bank’s earlier plan to raise the entire amount in one go. Among the alternative plans explored under the new strategy, Yes Bank is even considering a “rights issue to raise capital", said one of the two people.

Yes Bank’s capital top-up plans over the past four months, which included searching for a large anchor investor, have largely been unsuccessful and the current strategy tweak is expected to hasten funds mobilization because it urgently needs to build buffers against potential loan losses and stay compliant with existing regulations.

The bank has also been considering qualified institutional placement (QIP) and preferential allotment to raise capital.

“The bank is considering rights issue mode because this route allows the issuer (Yes Bank) to sell shares at a price close to the current market price," said the second person. “In preferential allotment or QIP, the pricing is done as per the regulatory formula of six-month average or two-week volume-weighted average price, whichever is higher. This will force the bank to set the issue price much higher than the current market price."

Another advantage of a rights issue is that the issuer does not need to scout for new investors because only the existing ones can buy shares.

Currently, Life Insurance Corporation of India (8.06%), HDFC Mutual Fund (2.27%), Jwalamukhi Investment Holdings (1.62%) and Government Pension Fund Global (1.30%) are among the largest public shareholders of Yes Bank.

Yes Bank declined to comment.

The bank has hired four investment bankers for raising capital. Among them, ICICI Securities Ltd is working as the banker for key documentation processes, while the others will primarily focus on shortlisting potential investors.

A spokesperson for ICICI Securities declined to comment.

The change in Yes Bank’s strategy comes against the backdrop of the bank’s abrupt rejection of the $500 million investment offer made by Citax Holdings Ltd and Citax Investment Group. In November, the bank said Citax had evinced interest to invest $500 million in Yes Bank.

“Citax is no longer in the list because Citax did not deposit the required money in the escrow account for enabling the capital raising committee of Yes Bank to consider their offer," said the first person.

(Graphic: Sarvesh Kumar Sharma/Mint)
(Graphic: Sarvesh Kumar Sharma/Mint)

After a board meeting on Friday, Yes Bank said it would not proceed with the $1.2 billion offer from Erwin Singh Braich/SPGP Holdings. However, the bank said it was favourably considering the Citax offer and the final decision regarding allotment would be taken during the next round of board meetings.

The bank last raised 1,930 crore through a QIP issue in August. Given that QIP rules require a gap of at least six months between each of them, Yes Bank will become eligible for another such issue only after February. The rules mandate that a QIP with an issue size of up to 250 crore must have at least two allottees, and for QIPs over 250 crore at least five allottees, with no single allottee being given more than 50% of the issue size.

Yes Bank’s non-performing assets (NPAs) have swelled over the past few quarters. The bank not only needs capital for provisioning of bad loans but also to stay compliant with the Reserve Bank of India’s (RBI) norms. At the end of September, Yes Bank’s tier I capital adequacy ratio stood at 10.7% against the regulatory requirement of 8.875%. Its common equity tier 1 capital stood at 8.6%, marginally above the regulatory requirement of 7.375%.

In an exchange filing on Tuesday, Yes Bank said it will convene an extraordinary general meeting on 7 February to seek shareholders’ approval to raise its authorized capital. The bank will also seek approval to raise 10,000 crore in order to augment the lender’s core capital. On Friday, the Yes Bank board approved raising as much as 10,000 crore, in one or more tranches via a QIP or any other private placement of equity or debt.

On Tuesday, the Yes Bank stock fell 13.18% to an intraday low of 36.55 on the BSE, before closing 8.43% lower at 38.55. The bank’s stock has been in free fall since RBI, in September 2018, disapproved co-promoter Rana Kapoor’s continuation as CEO. Due to constant pressure on the stock and uncertainty over the bank’s fundraising plans, several top investors have dumped its shares in the December quarter, shows stock exchange data.

Kotak Mutual Fund, SBI Mutual Fund and Franklin Templeton Mutual Fund that held 1.14%, 1.7% and 1.14%, respectively, in the bank at the end of September have sold their stakes in the last quarter.

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