Talks between private sector lender Yes Bank Ltd. and at least four global private equity funds for a possible stake sale went cold after the funds did not get enough comfort from publicly available information on the bank’s asset quality and profitability outlook, said three people in the know, speaking on conditions of anonymity.
Instead, the investors sought more granular information, which the bank is not allowed to share based on the existing insider trading rules.
Yes Bank has been looking to raise close to $1 billion for some time now. The fundraising plans were delayed by the abrupt exit of founder Chief Executive Rana Kapoor. Ravneet Gill, who took over as chief executive officer in March, kicked off a renewed attempt at fundraising.
Gill had said that the bank could raise money via private equity investors or a qualified institutional placement. It recently raised about $275 million through a QIP issue but is likely to need more capital soon.
As part of its capital raising efforts, Yes Bank was in talks with private equity funds, including Apax Partners LLP, Blackstone Group Inc., Warburg Pincus LLC and Advent International Corp., according to two of the people quoted above.
The investors sought clarity on two key issues:
- Stressed loans, their recovery prospects and ability of promoters to repay dues within the timeline set by banks;
- Profitability of the bank’s core franchise now that it was going slow on high yielding business on relatively lower-rated corporate.
The funds, however, felt that the bank did not provide enough clarity and decided to put talks on the back burner, two of the people quoted above said.
The third person quoted above said that since the plan to raise funds from private equity firms was through an open mandate, it was not possible for the bank to share granular data on individual accounts with the investors. Companies are only allowed to share publicly available information during such fundraising activities, to avoid arbitrage due to information asymmetry, this person said.
Mails sent to Apax Partners, Blackstone and Warburg Pincus sent on Monday remained unanswered. Spokespersons for Yes Bank and Advent International declined to comment on the queries emailed to them.
Like other banks, Yes Bank went through an asset quality review initiated by regulator Reserve Bank of India.
For two consecutive years, the bank reported large divergence in asset quality.
In FY16, after its first assessment, RBI found Yes Bank’s bad loan divergence at Rs 4,176.70 crore—much higher the reported gross NPA of Rs 748.9 crore during the period. Again, in FY17, the central bank found the private lender’s divergence at Rs 6,355 crore, or three times the reported bad loan amount. Yes Bank reported gross NPAs at Rs 2,018 crore in FY17, lower than Rs 8,373.8 crore estimated by RBI.
In FY19, the bank reported no divergence in asset quality.
In the March quarter of FY19, Yes Bank identified a watchlist of Rs 10,000 crore. In the June quarter of FY20, the bank said that the watchlist remains at Rs 10,000 crore. The bank also has a sub-investment grade book of Rs 29,000 crore, only part of which is included in the watchlist.
Yes Bank’s stressed asset portfolio includes firms such as Dewan Housing Finance Corporation Ltd., Subhash Chandra’s Essel Group, Anil Ambani's Reliance Group firms, and CG Power and Industrial Solutions Ltd. promoted by Gautam Thapar.
As a result of this, equity analysts have been cautious on the bank.
“The first quarter results and management commentary thereafter only make it clear to us that Yes Bank faces a long journey back to credibility,” said Macquarie Research in a note dated July 18. Nomura, in its note, said that the path to recovery for Yes Bank could be very challenging.
Gill, however, has maintained that the bank has identified most stressed accounts on its books. According to the analyst call transcripts on the bank’s website, Gill noted that the bank’s pre-provisioning profit was large enough to cover any additional provisions necessary for these accounts.
“I think it is important again to note that the capital that we are looking to raise is purely growth capital and is not capital that is being sought to improve our absorption buffer for provisioning,” Gill had told analysts.
As of June 30, the bank’s capital adequacy ratio stood at 15.7 percent, with a Common Equity Tier-1 ratio of 8 percent.
To be sure, the money raised by Yes Bank in the QIP issue is likely to tide it over the immediate period. As such, the lender has some time on its hands during which it can continue to pursue either private equity funds or other investors for fundraising.
The third person quoted above said that while some investors may have backed out from talks, the bank still has a list of investors who are interested. These include other international private equity funds, long-only funds as well as large strategic investors who want a piece of the bank.
Societe Generale SA, Key Square Capital Management LLC, BNP Paribas SA and HDFC Trustee participated and contributed to over 65 percent of the total amount raised in the Yes Bank QIP, in which shares were issued at Rs 83.55 per share.
On Monday, the Yes Bank scrip closed at Rs 63, up 6.33 percent from Friday.
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