Yes Bank Share Sale: Hit By Regulation Or Demand?
What prompted the deferral of Yes Bank’s share sale: regulation or insufficient demand?
Private sector lender Yes Bank Ltd. has withdrawn its institutional share sale program citing misinterpretation of regulatory guidelines related to qualified institutional placements (QIP).
The bank, which opened its QIP issue on the evening of Wednesday September 7, then informed stock exchanges at 3.40 pm on Thursday September 8, that regulations required it to keep the issue open for two days, until September 9. At 4.43 pm Yes Bank informed the stock exchanges that it had deferred its plans to raise funds.
Here is the sequence of events leading up to Thursday’s debacle.
On September 7, Yes Bank informed the Bombay Stock Exchange (BSE) that subsequent to the approval of the bank’s board and shareholders for a qualified institutional placement, the board’s Capital Raising Committee had decided in a meeting on September 7 that,
- It had approved the preliminary placement document (PPD), or in other words an offer document.
- It had authorised the opening of the QIP on September 7.
- The ‘Relevant Date’ is September 7 and the floor price is accordingly determined to be Rs 1371.84 per share. The Bank may consider offering an up to 5 percent discount to the floor price.
- The Capital Raising Committee would determine the issue price on Monday, September 12.
The QIP opened on September 7, and since book building is not a public process, there was no information on the demand the issue garnered through that evening and on the morning of September 8.
At the end of trade on September 7, Yes Bank’s shares closed at Rs 1,405.40 per share. On September 8, the bank’s shares opened at Rs 1,390 per share, fell to an intra-day low of Rs 1,325 per share before closing at Rs 1,330.65 per share, that’s 5.32 percent lower than the previous closing price.
Remember, that on a QIP floor price of Rs 1,371.84 per share, the bank had indicated it may offer an up to 5 percent discount, lowering the ‘potential QIP price’ to Rs 1,303. 24. Had the QIP closed before the stock exchanges opened for trade on September 8, that ‘potential QIP price’ would have amounted to a Rs 100 per share discount to the stock’s closing price of Rs 1,405.40 per share.
But it seems the issue did not close before trade opened on September 8. And during the day’s session the stock fell over 5 percent to Rs 1,330.65 per share, which is still above the ‘potential QIP price’, but amounts to a lower discount of Rs 27 per share.
Pricing Matters
September 7
- Closing Price: Rs 1,405.40 per share
September 8
- Opening Price: Rs 1,390 per share
- Intra-day Low: Rs 1,325 per share
- Closing Price: Rs 1,330.65 per share
QIP Price
- Floor Price: Rs 1,371.84 per share
- Post 5 percent discount: Rs 1,303 per share
Misinterpretation Of New QIP Guidelines?
The next communication from Yes Bank was a filing with the stock exchange, published at 3.41 pm on September 8. In that, the bank said that in order to comply with SEBI regulations “the issue price of the QIP cannot be determined prior to the aforesaid meeting on September 12, 2016. Accordingly, the bank is required to keep the issue open till September 9, 2016.”
About an hour later, at 4.53 pm, the stock exchange published a Yes Bank filing that said, “Due to Extreme Volatility during today’s trading day because of misinterpretation of new QIP guidelines, YES BANK has been advised by its appointed Merchant Bankers to defer its proposed QIP.”
Soon after, Rana Kapoor, the managing director and CEO, Yes Bank told BloombergQuint in an interview on the phone, “The regulatory requirement to keep the share sale open for three days led to speculative activity in the stock.”
Four lawyers BloombergQuint spoke to said that SEBI regulations do not prescribe a minimum number of days over which the issue has to be open for subscription.
To my knowledge there is no specific regulation that requires a QIP offering to be kept open for a minimum number of days. I’m not sure on the issues relating to the Yes Bank QIP and would not be able to comment on that.Sandip Bhagat, Partner, S&R Associates
Managers And Advisors
It must be noted here that eleven investment banks and three law firms were involved in the Yes Bank QIP, as per the placement document available on the BSE website.
The global coordinators and book running lead managers to the placement included Goldman Sachs (India) Securities Private Ltd., Motilal Oswal Investment Advisors Private Ltd., CLSA India Private Ltd.
The joint book running lead managers were Edelweiss Financial Services Ltd., HSBC Securities and Capital Markets
(India) Private Ltd., Inga Capital Private Ltd., Investec Capital Services (India) Private
Ltd., JM Financial Institutional
Securities Ltd., Nomura Financial Advisory &
Securities (India) Private
Ltd., Religare Capital Markets
Ltd and SBI Capital Markets Ltd.
Luthra and Luthra Law Offices was the legal counsel to Yes Bank. Shardul Amarchand Mangaldas & Co. and Allen and Overy LLP were legal counsel to the QIP managers.
Where Was The Lapse?
The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, cited by Yes Bank in its exchange filing, require that a listed company must give the stock exchange prior intimation of at least 2 working days in the case of any board meeting called to decide on fund-raising matters.
Yes Bank’s filing on September 7 met this regulatory requirement of giving the stock exchange prior notice of at least 2 working days. BloombergQuint was not able to ascertain what ‘misinterpretation of new QIP guidelines’ Yes Bank was referring to.
It’s also not clear why on September 8, at 3.41pm Yes Bank informed the stock exchange that to be in compliance with regulations ‘the issue price of the QIP cannot be determined prior to the aforesaid meeting on September 12, 2016. Accordingly, the Bank is required to keep the issue open till September 09, 2016.’
Because on September 7, the Bank had itself disclosed, in its filing with the stock exchange, that the issue price would be determined on September 12.
Tejesh Chitlangi, partner at law firm IC Legal told BloombergQuint in an email communication that there was no legal or regulatory requirement for the QIP to be kept open till September 9. Referring to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 he said,
The Regulation 29(1) read with Regulation 29(2) only requires a clear notice of 2 working days (excluding the notice day and board meeting day) to be provided which was duly done by Yes Bank. There was no requirement for the issue to be kept opened till September 9, 2016 as was stated by Yes Bank in its today’s first BSE filing (at 3.41pm).Tejesh Chitlangi, Partner, IC Legal
Chitlangi added that “no amendment has taken place in SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 as well as ICDR Regulations off late which could have given rise to any interpretation issue.”
A BloombergQuint query sent to Yes Bank seeking clarity on the specific regulation that required the QIP to stay open for three days was not answered.
A few investment bankers and lawyers BloombergQuint spoke to were unable to identify a regulation that could have forced the bank to defer the issue. They alluded to insufficient demand for the QIP as a possible reason for its deferment, but BloombergQuint was not able to confirm that with Yes Bank or any of the investment banks managing the QIP.
Yes Bank maintains that the QIP was fully subscribed by Thursday morning.
This story includes inputs from BloombergQuint’s Sajeet Manghat and Payaswini Upadhyay.