Yes Bank to make private placement to Swiss Re-insurance

Excerpts from CNBC-TV18's exclusive interview with Rana Kapoor:

Q: Could you walk us through how much you are placing, how much price you are doing it at and confirm for us the equity dilution involved?

A: We have just approved at our board committee meeting an issuance of 10 million new shares on a preferential basis to Swiss Re-insurance company, Zurich Switzerland which is called Swiss Re.

We are issuing these new shares at a value of Rs 120, which means an aggregate of Rs 120 crore of new capital is going to be added, out of which Rs 110 crore is going to be the premium on the issuance of the new shares.

Q: What will this give Swiss Re in terms of an equity holding within Yes Bank and by virtue of that, how much dilution is involved?

A: Fundamentally this is on an expanded share capital. So post placement it will work out to 3.57% of the total of the new capital of the bank. So it is a fairly significant investment from a percentage standpoint particularly coming from a high pedigree, marquee investor like Swiss Re.

Q: What will be the money be used for and any plans at all within the next few quarters for Swiss Re to increase their stake that they will now get in Yes Bank?

A: First and foremost this investment is a revalidation or reaffirmation of our basic business and financial model. We are presently running 24 branches and have another 36 additional licences at various stages of execution to take our branch network to 60 branches by March or latest by June'07.

We definitely need to increase our single borrower and group exposure limits, which is very important facet of meeting higher requirements of our customers, who are also growing rapidly.

The third exceedingly important thing is to make sure that we are constantly reducing our cost of capital as we further de-risk and strengthen the financial structure of Yes Bank.

This is a new beginning with Swiss Re and has a lot of strength and competencies. They see both of us combining in some way in the future. It is early to find what areas. But definitely sustainability is an area where we have a lot of wavelength. We want to work on specific projects like derivatives for instance. There will be additional areas like insurance and some other potential cooperation and investments that we will pursue at a later stage.

Q: What is your capital adequacy, what is your credit growth and how much more capital are you likely to require in FY07?

A: We have stated objective of raising between now and fiscal year ending March'07 a target of USD 150 million of tier I and tier II capital. So we have raised USD 26 million through this transaction subject to shareholder approvals, which will follow through in AGM.

We are presently also pursuing a lower tier II mobilization of Rs 180 crore. So USD 66 million out of USD 150 million is well underway and the balance we plan to raise later this quarter but more in the Jan to March final quarter of the fiscal year ending with a target to take our net worth to a minimum of Rs 1250 crore and potentially even more than that by fiscal year ending March'07.

Q: There is a target for your promoter Rabo bank to bring their stake down to below 10%, will there be divestment any time down the line or will Rabo's stake come down now only because of fresh capital issuances?

A: I want to correct you. Rabo is not a promoter of Yes bank. The two promoters of Yes Bank are Ashok Kapoor and myself. Rabo is a financial investor in Yes Bank with presently a share of 20%.

But their status in the bank is that of a financial investor. So they will come down marginally from 20% to slightly above 19% because they also proportionately dilute. Their level of ownership is going to be now 19.23%.