In August, the private sector lender had sold 23.1 crore new shares to institutions at Rs 83.55 apiece, raising Rs 1,930 crore.
Yes Bank said on Thursday said a global investor had agreed to invest $1.2 billion in the lender, via fresh shares, an announcement that saw the stock zoom 35% to Rs 76.65. The identity of the prospective investor is unknown with the names of Hong-Kong based SPGP Holdings, Carlyle, Farallon Capital and two family offices doing the rounds.
In August, the private sector lender had sold 23.1 crore new shares to institutions at Rs 83.55 apiece, raising Rs 1,930 crore. At the current market capitalisation of around Rs 18,000 crore, an investment of Rs 8,500 crore implies a fairly big dilution but the lender badly needs capital. Its bad assets have been rising; the net NPA ratio went up from 1.18% in Q3FY19 to 1.86% in Q4FY19 and to 2.91% in Q1FY20.
With the NPA cycle not yet at an end, the lender’s Tier-I capital levels of 10.7% at the end of June could fall short of mandated levels of 7% of risk assets. In early July, analysts at Jefferies had noted the ‘below investment grade book’ had inched up materially to to 7.4% of exposure. “Any lumpy NPL will shave off its wafer thin capital below regulatory level,” the analysts cautioned.
At the end of June, the bank’s corporate “BB and below” rated book stood at Rs 29,470 crore and the lender had put Rs 10,000 crore of its portfolio on a ‘watchlist’,making provisions for a fifth of the amount.
Experts said it was possible the Reserve Bank of India (RBI) may allow a foreign investor to pick up a big stake in Yes Bank, citing the permission given for a 51% stake purchase by Fairfax in Catholic Syrian Bank in 2018.
They referred to the RBI rules of 2016, which say: “In the case of ‘regulated, well diversified, listed entities from the financial sector’ and shareholding by supranational institutions or public sector undertaking or Government, a uniform limit upto 40% of the paid-up capital is permitted for both promoters/promoter group and non-promoters.”
However, no purchase of a stake of 5% or more in a private bank can be made without the RBI’s prior approval. That holds for foreign investors as also any person — promoter’ s relatives and associate enterprises and persons acting in concert. Voting rights too require the regulator’s nod.
Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services, said it was unlikely the regulator would allow any business house or a conglomerate to invest in Yes Bank if it already has an investment in any other bank with a presence in India. “Normally a two-point presence is not allowed by the regulator,” Parekh explained, adding that this particular case may have to be examined a little beyond the prescribed regulation. Parekh believes the prospective buyer could be acquiring a chunky 33% of the bank’s equity. That,then, would require the buyer to make an open offer to other shareholders. However, experts also say that the regulator may require the investor to set up an Indian corporate entity, if it does not have, as in the context of Fairfax and CSB Bank.