- Raising additional capital will be crucial for the bank if it has to comply with capital adequacy regulations
- Yes Bank’s successful QIP in a weak equity market propelled the bank’s stock by six percent on August 14-------------------------------------------------
Yes Bank is planning to raise an additional $600 million from large investors to bolster its capital buffers, two people directly aware of the lender’s capital raising plans said.
The bank plans to raise more funds after its qualified institutional placement (QIP) offering that closed on August 14 was oversubscribed, the people said on condition of anonymity. Yes Bank raised Rs 1,930 crore (about $270 million) in the fundraising.
The share issuance resulted in a 9.96 percent stake dilution. The bank originally planned to raise $1 billion to shore up its capital adequacy ratio required under Basel III norms.
“In the next few weeks, Yes Bank will reach out to shareholders to secure a fresh approval for another capital raising plan,” said one of the two people cited earlier.
The bank has gained some confidence after mopping up $270 million through the QIP despite the weakness in the overall equity market.
Since the dilution of shareholding will be much larger in the proposed upcoming capital issuance than this one, the bank is looking to bring in strategic investors who could support the bank’s growth, said the first person.
A Yes Bank spokesperson declined to comment.
In a late evening exchange filing on August 15, Yes Bank confirmed that it has sold around 231 million shares to Societe Generale (18.75 percent of 231 million), Key Square Master Fund (16.2 percent), BNP Paribas Arbitrage (14.43 percent), HDFC Balanced Advantage Fund (10.26 percent) and Key Square Master Fund II (5.88 percent), among other shares.
Other investors in the QIP were Government Pension Fund of Norway, British investment firm Ashmore Group and Aditya Birla Sun Life Asset Management Co, among others, said the first person.
Yes Bank’s successful QIP in a weak equity market propelled the bank’s stock by six percent on August 14, before it closed at Rs 76.55 on BSE, but raising more capital will be crucial for the bank if it intends to comply with capital adequacy regulations.
As of the June quarter, the bank’s Tier I capital adequacy ratio stood at 10.7 percent as against the regulatory requirement of 8.875 percent. The bank’s common equity Tier I capital stood at eight percent, which is marginally above the regulatory requirement of 7.375 percent.
“The latest QIP will increase the bank’s CET-1 ratio to 8.6 percent,” added the second person.
Raising more capital will be crucial for Yes Bank to achieve regulatory balance between capital adequacy rules and business growth.
However, since the Yes Bank stock has witnessed an 80 percent drop in its price from Rs 404 a year ago, larger the capital issuance, higher will be the dilution in stake.
“With a higher dilution of stake, new investors will tend to have a significant holding in the bank. This is why Yes Bank will try to on-board a long-term strategic player in the next capital raising issue. At the current market price, $600 million of capital raising may lead to a stake dilution of over 20 percent. Depending on the stock price the bank will decide the size of the issuance,” said the second person.Yes Bank is dealing with a surge in doubtful loans, falling share price and a declining profit. The bank’s net profit in the April-June quarter fell to Rs 114 crore from Rs 1,109 crore in the year-ago period.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.