Yes Bank’s Potential Investors Lay Down A Tough Condition: Exclusive

Yes Bank Ltd.’s potential investors have laid down a tough condition, which could make it challenging for the lender to strike a deal to raise capital.

The Mumbai-based private lender received non-binding expressions of interest from JC Flowers & Co. LLC, Tilden Park Capital Management LLP, OHA (U.K.) LLP and Silver Point Capital, it disclosed to the stock exchanges on Feb. 12.

According to two people with direct knowledge of the conditions laid down, the investors are seeking participation from “sovereign banks” in any fundraising by Yes Bank. This, the investors believe, will help reassure the bank’s depositors and safeguard any new investment into the lender.

Any such arrangement would need the approval of the government, which is the majority owner of public sector banks. It will also likely need approval from the Reserve Bank of India due to regulatory restrictions on a bank owning equity in another.

The investors believe that the backing of a government-owned bank would help stave off any investor anxiety should the bank’s stressed assets rise beyond the current level of non-performing assets, the people quoted above said on condition of anonymity. A clearer picture of the stressed assets will emerge when the bank releases its delayed third-quarter earnings in two weeks.

On Monday, the Mint newspaper reported that the RBI is looking at an alternate plan for Yes Bank, in case the latest fundraising process also falls through. The regulator’s plan could include the sale of pooled assets to public sector banks or the sale of a small equity stake to a state-owned lender as a last resort, the report said. BloombergQuint could not independently verify this.

When contacted, a Yes Bank spokesperson declined to comment on whether the potential investors have sought such a reassurance, calling the report “purely speculative”.

Tilden Park Capital, OHA (UK) and Silver Point Capital did not respond to queries mailed on Monday. A spokesperson for JC Flowers declined to comment on the developments.

Also Read: Yes Bank’s Fundraising Plan May Run Into SEBI Pricing Hurdle

Yes Bank has been trying to raise capital for more than a year now. Soon after taking over as chief executive officer in March 2019, Ravneet Gill estimated that the bank would need $1-1.2 billion. It raised $285 million through a QIP in August 2019.

Since then, a series of potential investments have fallen through.

Also Read: A Year On, Ravneet Gill Struggles To Keep Yes Bank Afloat

The bank is in need of capital as its Common Equity Tier-1 (CET-1) is close to the regulatory minimum of 8 percent. The bank also needs capital to provision against a rising pool of stressed assets.

The delay in raising funds has prompted a series of ratings downgrades.

Most recently, ICRA Ratings Ltd. downgraded the bank’s securities from A to A- on Feb. 20, citing delays in fundraising. “With the delay in capital raise and a likely increase in non-performing exposures, the capital and solvency profile is expected to weaken further. Hence, the need to raise capital is immediate. Given the decline in the deposit base in Q2 FY20, the deposit level would also remain a key monitorable and a driver of the bank’s liquidity,” ICRA said in its ratings note.

India Ratings and Research raised similar concerns in its Feb.12 note.

Downgrading the bank’s securities to A-, the ratings agency said its action reflects the continued delay and inconclusive quantum of the anticipated equity infusion in Yes Bank. “The bank continues to remain in discussions with various potential investors. However, India Ratings believes raising sizeable capital in the very near term could be challenging and could require various regulatory and other approvals,” the agency said.

Also Read: How Shree Cement Made Its Way Into Nifty 50 Replacing Yes Bank

As on Sept. 30, 2019, Yes Bank’s outstanding loan book stood at Rs 2.24 lakh crore, down from Rs 2.39 lakh crore a year ago. The bank’s gross NPA ratio stood at 7.39 percent of gross advances. The bank also disclosed Rs 31,000 crore worth loans in the BBB and below the rated pool, of which, at least a quarter is likely to slip into NPA category, according to the management.

Also Read: Yes Bank Needs an Arranged Match, Or It’s No Bank

Yes Bank delayed the filing of its quarterly earnings citing the management’s preoccupation with the capital raising programme. The results are due on March 14.