Yes Bank Board Approves $2 Billion Fund Raise Via Preferential Allotment Of Equity Shares

After a 12-hour long board meet today, the board of private sector lender Yes Bank Ltd. approved the issue $2 billion worth of equity shares on a preferential basis to a clutch of investors.

In a statement, the bank said that it has received proposals from eight institutional investors and family offices for purchasing equity shares in the bank upto $2 billion (Rs 14,000 crore approx.).

While the bank’s board has approved of the fund raise, it will reconvene on Dec. 10 to finalise the details of the preferential allotment and thereafter it will hold an extra-ordinary general meeting for shareholder approval.

Of the eight investors, that have expressed their interest to buy shares of the bank, the family office of Canadian industrialist Erwin Singh Braich and the Hong-Kong based SPGP Holdings, which is backed by Braich, has sought to purchase $1.2 billion worth equity shares in the bank.

The bank said that discussions with Braich/SPGP Holdings are ongoing and expected to be concluded shortly, meanwhile the binding term sheet has been extended till Dec. 31, 2019.

Further, the Singapore-based Citax Holdings Ltd. and Citax Investment Group have expressed interest to purchase $500 million worth of shares in the bank, while there is also an undisclosed large U.S.-based ‘fund house’ that the bank said has expressed to purchase $120 million worth of shares.

The name of this fund house, the bank said, will be disclosed early next week.

Aside from these, the list of prospective investors includes two other institutional investors and a few private ones - Aditya Birla Family Office, GMR Group and Associates and equity market investor Rekha Jhunjhunwala. Her husband, Rakesh Jhunjhunwala, a leading stocks investor, recently purchased a 0.5 percent stake in the bank from the open market.

In August this year, Yes Bank raised $275 million through a qualified institutional placement. That, according to Ravneet Gill, the bank’s chief executive officer, was the first tranche of capital raising. Subsequently, Gill said that the lender would look to raise another $1-1.2 billion to meet its capital needs over the next two years.

On Oct. 31, Yes Bank said that it had received a binding offer for an investment worth $1.2 billion from a global investor as part of its fund-raising efforts. The investment is subject to regulatory, board as well as shareholders’ approvals. “The Bank also continues to be in advanced discussions with other global and domestic investors,” it said.

At the time, the bank did not disclose the name of the investor.

Typically, banking regulator Reserve Bank of India prefers that a single investor holds close to 10 percent in a bank. However, the existing rules do have a provision for an investor picking up a larger stake in special circumstances. In one such recent case of Catholic Syrian Bank, the regulator had allowed Prem Watsa to take up 51 percent stake.

Then in early November, Yes Bank disclosed it was in discussions with investors who are willing to pump in more than $3 billion in the private sector lender. At the time the bank had said it was also in discussions with six global private equity funds and two domestic mutual funds.

The Capital Boost

The bank needs capital to ensure that it has provisioned adequately for the stock of bad loans on its books and has enough funds to continue growing.

As of Sept. 30, the bank’s gross non performing assets were at Rs 17,134 crore, or 7.39 percent of its total assets. Moreover, earlier this month, the bank disclosed that the RBI had found gross NPA divergence worth Rs 3,277 crore in the bank’s financials for the year ended March 31 2019. Yes Bank also has a BB and below rated book of over Rs 31,000 crore, of which, nearly 25 percent could go bad, according to the management.

Despite the additional capital the bank raised through the QIP, earlier this month Moody’s Investors Service warned that the bank could see another rating downgrade if the asset quality issues are not addressed and if additional capital is not infused.

The asset quality troubles come from exposures toward companies like Dewan Housing Finance Corporation Ltd., Cox & Kings Ltd., Cafe Coffee Day, CG Power and Industrial Solutions Ltd. and Anil Ambani’s Reliance Group. While resolving those stressed accounts, Yes Bank has decided to pursue a more granular lending strategy.

Separately, the bank has also recently witnessed the exit of its co-founder Rana Kapoor, who has sold almost his entire stake in the bank. With that, the shareholding of the Indian promoters has fallen below 10 percent. This, according to an advisory from proxy firm IiAS, should lead to a reconstitution of the bank’s board.