Yes Bank shareholders get locked-in; can’t sell before three years as rescue plan comes into force

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Updated: March 14, 2020 4:46 PM

Although the gazette notification inflicts pain on existing shareholders, anyone who wishes to purchase Yes Bank shares in the coming week will remain unstirred by the lock-in period. 

Yes Bank reconstruction scheme was approved by the Cabinet on Friday.

Easing the pain of depositors on one end and shifting the burden on existing shareholders, the Yes Bank Reconstruction Scheme 2020, placed anyone with 100 shares or more than that of the cash-starved lender under a three-year lock-in period. According to the gazette notification issued by the Ministry of Finance on Friday evening, “There shall be a lock-in period of three years from the commencement of this Scheme to the extent of seventy-five per cent. In respect of shares held by existing shareholders on the date of such commencement.” The Union Cabinet approved the Yes Bank restructuring scheme Yesterday and issued the notification about the same bringing it into force from Friday.

Although the gazette notification inflicts pain on existing shareholders, anyone who wishes to purchase Yes Bank shares in the coming week will remain unstirred by the lock-in period. “If I initiate fresh buy on Monday, what the gazette notification says does not apply to me. While, anyone holding 99 or fewer shares on Friday will have no restrictions on trading the shares, but someone with 100 or more shares will be under the 75 per cent lock-in from Friday itself,” Ajay Bodke, CEO PMS Prabhudas Lilladher told Financial Express Online.

While terming the lock-in as ‘fairly common’, Deepak Shenoy, Founder, Capital Mind said that investors will have to wait and see how the final capitalisation looks to conclude whether the move to lock-in shares of investors is positive or not. “Let’s wait for the final capitalisation structure to see who is investing how much, what steps will be taken to replenish the deposits that will go out and what the operational criteria will be. Now, the government has done its part and it’s on to the private banks to take it forward.”

Bodke believes that the move is fair one considering the overall idea of restructuring Yes Bank is to contain the panic. “It is a fair move by the government if you are asking SBI and other investors to contribute towards the rescue of India’s fourth-largest private bank. The idea is to contain panic among depositors, which applies to other private sector banks too. They are being asked to hold 75 per cent stake for 3 years so why should the same sacrifice not be asked of existing shareholders?” he said.

While Abhimanyu Sofat, Head of Research, IIFL Securities has different views on the idea of locking-in shares of individual investors. “The government should have given a window ahead of making such a move or maybe should have removed it from the exchange, that would have been a better option and let the market forces decide further. Anyone who recommends the stock will not do justice now,” Sofat told Financial Express Online. Sofat, who is waiting for more clarity to emerge on the gazette notification, added that if existing shareholders are placed under a lock-in period it will mean that old shareholders will get value only if they are long-term investors.

Saying that the government has been liberal in not writing down the value of equity in Yes Bank, Bodke added, “There is no write down on equity holdings. Investors also need to be in the pain bracket. If this would have been in the United States of America or Great Britain, shareholders would have been wiped out first but here, shares are valued at what they are and not razed to zero.” 

While informing the bourses about the reconstruction scheme, Yes Bank on Saturday highlighted the lock-in period saying, “In terms of the said Clause, 75% of the shareholding of the shareholders holding 100 or more shares will be automatically under the lock-in. Accordingly, all shareholders holding 100 or more Equity Shareholders are advised to exercise the utmost caution while dealing in the script of the Bank and be guided by the Scheme.”

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