Yes may raise the $1.2 bn from multiple investors for ease of getting an RBI approval
The investment, if cleared by the RBI, will diminish the shareholding of Yes Bank’s original promoters Rana Kapoor and late Ashok Kapur’s wife Madhu Kapur
Yes Bank Ltd on Thursday said a global entity has made a binding offer to invest $1.2 billion in the cash-starved lender through an issue of new shares, boosting its stock by as much as 35%, even as concerns remain about whether the proposal will pass muster with the banking regulator.
The investment, if cleared by the Reserve Bank of India (RBI), will diminish the shareholding of Yes Bank’s original promoters Rana Kapoor and late Ashok Kapur’s wife Madhu Kapur. Such a large issuance, if made to a single investor, may result in a change of the bank’s promoters.
Yes Bank’s shares, which soared after its exchange filing, ceded some gains later to close the day 24% higher at ₹70.45 on the BSE, on a day the benchmark Sensex rose 0.19%.
Yes Bank may raise the $1.2 billion from multiple investors for the ease of getting approval from the Reserve Bank of India (RBI) and avoiding an open offer, two bankers said. According to these bankers, who spoke on condition of anonymity, Yes Bank officials have held discussions with four-five potential investors. Under this option, each investor may end up acquiring less than 10% in Yes Bank.
The bankers cited above said Yes Bank may have approached US-based hedge fund Farallon Capital Management and private equity fund Carlyle Group. Significantly, if Yes Bank decides on multiple investors, then there will be a change in promoter holding but there won’t be any change in promoter entity unless one single entity buys more than 25%.
Yes Bank, which has been desperately trying to raise money to stay afloat, did not elaborate the exact structure drafted by the bank’s capital-raising committee for the $1.2 billion investment. Neither did the bank disclose the name of the investor. Yes Bank had earlier said it had shortlisted “global technology" companies as potential new investors but it is not clear whether the new investor is indeed a technology company.
If Wednesday’s volume-weighted average price of ₹57.77 is used as the benchmark, without adding a premium, a fresh share issue of $1.2 billion will translate into a stake of at least 36%.
Such a large stake purchase will require the investor to not only obtain special approval from RBI, but also make an open offer to buy an additional stake of at least 26%.
According to Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services, as soon as the proposed stake sale crosses 10%, it is for the regulator to decide.
“In Fairfax’s case, we saw the stake going up to 51% for Catholic Syrian Bank. At the end of the day, it is a matter of the regulator’s discretion," Parekh said. “If the regulator is convinced that this investment is in public interest, meaning in the interest of the banking system, then it certainly could approve the transaction and provide dispensations with regard to various rules. The regulations themselves talk about case-to-case basis while prescribing those thresholds."
Parekh was referring to Fairfax’s purchase of 51% stake in Kerala-based Catholic Syrian Bank. The regulator has also allowed Life Insurance Corporation of India to raise its stake in IDBI Bank to 51%.
For any stake purchase of 5% or more in a bank, RBI approval is mandatory. Bank promoters are mandated to bring down their holding to 15% over a period of time.
In any case, any prospective investor in the bank will need to gradually reduce its stake to 15% or lower within three years, or any such period as directed by RBI.
Also, an open offer will lead to a change in promoter control. After selling almost the entire promoter group stakes of Kapoor’s family-run firms, Yes Capital (India) Pvt. Ltd and Morgan Credits Pvt. Ltd, Kapoor had a stake of 3.92% in Yes Bank at the end of September. However, Kapoor has only partly sold his stake between August and October, primarily to repay the debts taken by his promoter group firms in the form of non-convertible debentures. Madhu Kapur and her firm, Mags Finvest Pvt. Ltd, hold 6.87% and 1.46%, respectively as the bank’s co-promoters.
Kapoor and Kapur, founding promoters, will lose the tag “promoters" if the new investor buys a stake worth $1.2 billion and makes an open offer.
To be sure, the promoters are not averse to relinquishing control. On 10 September, a Mint report cited senior executives at Yes Bank, as stating that the promoters are willing to reduce their shareholding.
“We are open to reducing stake if the bank decides to sell a minority stake to a global tech firm," Shagun Gogia had told Mint. Gogia is co-promoter Madhu Kapur’s daughter and an additional director on the Yes Bank board.
As of the June quarter, 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%, marginally above the regulatory requirement of 7.375%.
On 14 August, Yes Bank raised $270 million through a qualified institutional placement. Yes Bank has been dealing with a surge in doubtful loans and falling share price. The bank will declare its September quarter earnings on Friday. On Thursday, the bank said it also continues to be in advanced talks with other global and domestic investors.