The board will meet on 10 December to finalise the details. Reuters
The board will meet on 10 December to finalise the details. Reuters

Excitement over Yes Bank’s fundraising ebbs as Reserve Bank of India’s approval looks difficult

  • Current rules on shareholding do not allow a single investor to hold more than 10% in a private sector bank
  • Since August, Yes Bank’s stock has made big gains every time the management made an incremental announcement over potential investors

Yes Bank Ltd’s fundraising drama, which began in April, seems to be nearing a rather anticlimactic conclusion. For all the talk on big money coming from marquee investors, the eight pockets from where the bank will get funds has left much to be desired.

Of the eight investors, three are institutional and five are family offices. The largest investor, Erwin Singh Braich, who is expected to bring in nearly 60% of the $2 billion, is a Canadian entrepreneur about whom little is known.

Graphic by Satish Kumar/Mint
Graphic by Satish Kumar/Mint

Analysts believe that getting the regulator to agree on the big investor would be a tall task. The publicly available information on this investor is spotty. According to a BloombergQuint report, Braich went through bankruptcy proceedings roughly 20 years ago. Not much is known about the companies he has founded and promoted.

Through a preferential allotment of shares, Braich along with his firm SPGP Holdings will get to hold 25% in the bank if he invests the amount mentioned above, according to Nomura Financial Advisory and Securities (India) Pvt. Ltd. The other big investor Citax Energy will get a 10% stake. Current rules on shareholding do not allow a single investor to hold more than 10% in a private sector bank. Of course, the regulator can make an exception but it needs good reason to do so. “We doubt RBI (Reserve Bank of India) is going to give approval to such investors who don’t pass muster with respect to RBI’s ‘fit and proper’ criteria. So uncertainty regarding capital raising remains. We also have serious reservations regarding the quality of board of directors who are willing to consider these kinds of investors to be large shareholders, who don’t have the requisite experience," said analysts at Macquarie Capital Securities Ltd in a report on Monday.

No surprise that Yes Bank’s shares fell over 6% on Monday.

Recall that the management’s talk about capital-raising began way back in April, when the bank said it will soon raise $1 billion. It took the lender more than four months to raise a fraction of that amount in August.

New chief Ravneet Gill had drummed up enthusiasm at every possible public forum that marquee investors are willing to put money into Yes Bank. This was believable because erstwhile promoter Rana Kapoor was said to have loosened control over the bank. Gill made a case to investors that Yes Bank is truly on the path to becoming a professionally run bank with a new management on board.

Since Yes Bank needs capital to heal, the narrative in fundraising was critical. In September, Gill had said in an interview to Reuters that a stake sale to a global technology company was almost a done deal. In the list of investors given by the bank to stock exchanges, a technology company doesn’t seem to feature. During this time, the stock rose more than 15%.

Even now, there is a big if on whether the money will come into Yes Bank. The wait is on for regulatory approval but the worry is that it could be in vain.

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