While a successful $2-bn fund raise would address survival concerns, PPOP recovery is going to be gradual; ‘Neutral’ retained
Yes Bank management indicated that it has received investor interest of $2 bn of capital to be raised on a preferential basis and that the board will meet on 10th Dec to finalise the $2-bn capital raise. Of the $2-bn bid, $1.2 bn is from HK investor SPGP backed by Canadian investor Erwin Singh Braich, and $500 mn is from Citax Holding. Of the rest $300 mn, $180 mn is from well-known fund/investors/family office; the name of a $120-mn US fund has not been disclosed yet.
NOMURA view: Of the $2-bn funding, only $180 mn is from well-known funds/investors. While the lesser-known SPGP and Citax group have clarified to media their firm interest in Yes Bank and the sources of their funding, they would need to clear the RBI’s ‘fit and proper’ test, given these investors will have a large shareholding in Yes Bank if the proposed capital raise gets the regulator’s approval.
Fundamentally, a large capital raise would address the going concern worry for the bank, but as we have noted earlier, (i) the road to PPOP recovery will likely be tough and gradual, and (ii) there has been little success in resolution of stressed accounts involving Yes Bank in the past 12 months. We maintain our Neutral rating with a TP of Rs 63/share (0.75x Sep-21F adjusted book).
$2 bn of capital raise: Uncertainty on quality of investors
* Bank management indicated that it has received investor interest of $2 bn of capital and that it has hiked the capital raise plan from $1.2 bn to $2 bn.
*The CEO clarified that the issue of capital will be through a preferential route and the SEBI formula implies a price of Rs 78/share, which is at a +15% premium from the current level.
* If approved, the capital raise will lead to a +70% dilution at Rs 78/share and the new investors will hold +40% of the bank.
*The $1.2-bn bid from SPGP + Erwin Singh has been extended until the end of December–the board will meet again on 10th December and take a final call on approval and allocation.