MUMBAI : After getting its gills to breathe in troubled waters through a new chief and a new management, Yes Bank claims it has caught an investor, hook, line and sinker, to pour money into it.

A global investor has given a binding offer to infuse $1.2 billion through a fresh equity issuance, the bank said in a statement to the stock exchanges.

Graphic by Santosh Kumar Sharma/Mint
Graphic by Santosh Kumar Sharma/Mint

But getting an investor to sign the cheque was perhaps the easier job. Yes Bank is now up for the task to convince a miffed regulator to waive off a provision in shareholding norms. Reserve Bank of India (RBI) rules do not allow a single investor to hold more than 10% stake in an Indian bank. As such, there is still a big if over the reported fund infusion, and investors would do well to tread with caution.

The stock has fired up, rising nearly 24% on the news. To be sure, even before today's gains, the stock had risen more than 80% since early October, on hopes of fresh capital.

The significance of the reported capital infusion is its size. Before the news was made public, Yes Bank had a market capitalisation of a little over $2 billion, with the shares trading at Rs56.8 a piece. The $1.2 billion binding offer, in that backdrop, amounts to a massive infusion.

If everything goes according to plan, the funds would help fill the gaping hole that toxic loans have made in its balance sheet. And even after provisioning for a fast decaying loan book, the bank could be left with something to invest in growth.

But coming back to the RBI hurdle, an infusion of this order means a large stake, way above what current norms allow.

An issue price of 100, for instance, would mean the global investor ends up with a 25% stake in the expanded equity. A stake of over 26% will involve other complications such as making an open offer to minority shareholders.

But the regulator always keeps things interesting by adding a line that it is willing to negotiate “under special circumstances".

Yes Bank is betting that its circumstances of a tattered balance sheet are special for the regulator to consider giving the leeway.

Indeed, RBI may not be off the mark because the regulator has a precedent in this case. Fairfax Financial Holdings Ltd had bought a majority stake in troubled Catholic Syrian Bank in early 2018, and the RBI had allowed the deal as an exception.

Yes Bank is far bigger in size and interconnectedness, and investors are betting that the regulator will see merit in a relaxation in its case. But as the saying goes, there is many a slip between the cup and the lip. Investors should wait for details on the identity of the investor, the per share valuation of the deal and RBI’s stance before rejoicing.

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