Former Yes Bank Board Member Alleges Management Misled Shareholders

Uttam Prakash Agarwal, who was an independent director on the board of Yes Bank Ltd. until January 10, has detailed his concerns regarding the management of the lender’s capital raising plan in a letter to the Securities and Exchanges Board of India. Agarwal had resigned on Friday citing corporate governance concerns.

In his letter to the capital market regulator, Agarwal alleges that the bank’s Chief Executive Officer Ravneet Gill did not share adequate information about possible investors with the board and misled shareholders.

BloombergQuint has reviewed a copy of the letter. Yes Bank did not respond to an email and phone calls. Agarwal declined to comment further.

The discord between the bank and Agarwal, who chaired the bank’s audit committee, came to light on Friday. Agarwal sent in his resignation to the Registrar of Companies, citing corporate governance concerns. He added that he had detailed these concerns in a letter to regulators.

A few hours later, the bank informed stock exchanges that it had been directed by the Reserve Bank of India to review Agarwal’s “fit and proper” status. The bank said it had received legal opinions from eminent jurists and the nomination and remuneration committee of the Yes Bank board was to review the status during Friday’s board meeting. The bank also said that its board had taken on record the complaints raised by Agarwal and that it would deal with them appropriately.

Inadequate Information; Faulty Disclosures

According to Agarwal’s letter, Gill did not adequately disclose information regarding the $2 billion in capital which the bank was expecting to raise from a clutch of investors.

On Oct. 31, 2019, Gill informed the board of directors orally, over an audio conference call, that Yes Bank had received a $1.2 billion bid from a global investor, without disclosing any information regarding the bid, Agarwal alleges.

“There was no meeting of board of directors held for considering this proposal,” Agarwal said in his letter.

The same was disclosed in a press release on Oct. 31, without any details on the name of the investor. Details were not disclosed despite stock exchange queries, which followed various media reports.

About a month later, on Nov. 29, Yes Bank disclosed to stock exchanges that it had approved $2 billion fund raise via a preferential issue. In this release, the bank names Erwin Singh Braich and Citax Holdings as potential investors.

Agarwal said that the information disclosed to the stock exchanges on Nov. 29, after the board and the capital raising committee met to discuss the $2 billion in investment proposals, was at variance with what was discussed during the meeting.

According to Agarwal, the management did not immediately share correspondence from the investors or a copy of the binding term sheet. After considerable pressure from chairman Brahm Dutt and other board members, Gill finally disclosed term sheets from two bidders — Citax Holdings and SPGP Holdings / Erwin Singh Braich. The term sheets shared by the management did not indicate that the offers were binding, Agarwal said.

When pressed for further information, Agarwal said the bank assured him that all relevant documents would be provided at the Dec.10 board meeting. However, the information was not provided even then and a presentation was made “which contained nothing substantial or meaningful....”

Agarwal claimed that when “on our persistence”, Gill tabled a copy of the term sheets received from Citax and SPGP Holdings/Erwin Singh Braich, they were incomplete and did not include firm commitment as to the price, size, timings, confirmation from the banks about availability of the funds.

Moreover, the management did not submit copies of any due diligence conducted by reputed law firms or accounting firms to know the antecedents of investors or their capacity to fund the bank. No documentation suggesting compliance with regulatory requirements, including RBI’s fit and proper guidelines, were provided.

Apart from the two large bids, according to the information disclosed by the management to the board, Rekha Jhunjhunwala, Ward Ferry and Discovery Capital had only submitted ‘expressions of interest’ and not firm bids. One of the three investors was looking to invest in the bank’s debentures and not in its equity share capital.

Continued Delays In Fund Raising

In its stock exchange notification on December 10, the bank said that it would receive funds from Citax Holdings within a week, which are yet to be received. The funds were to be held in an escrow account, which would then be utilised once the board approved the fund raising.

The management had assured the board that it will soon approach the RBI to seek permissions for the investment proposal submitted by SPGP Holdings and Braich, on or before December 31.

“However no progress has been made on this for last over 2 months. Furthermore the CEO/MD has not made any further disclosure either to the board or to the stock exchange of such delay or likely outcome of this major committed/assured event,” Agarwal’s letter said.

According to the former independent director of the bank, a letter was issued by brokerage firm Prime Securities, saying that it will seek investment proposals from investors in the UK. “It was a clear ploy by CEO/MD to salvage the assurance / commitment / disclosures / documents presented to the board / informed to stock exchange, knowing that what is available on record is not properly disseminated or included in the press release issued to stock exchanges,” Agarwal wrote.

What Next?

Yes Bank, after its Jan.10 board meeting, said that it will seek approval to raise Rs 10,000 crore via a qualified institutional place in one or more tranches.

The delay in capital raising has already prompted analysts to question the bank’s outlook. The unavailability of capital “raises questions on the going-concern status of the bank,” said Nomura Global Markets Research in its note dated Dec.11.

According to Agarwal, regulators need to intervene.

“Regulatory authorities should intervene and issue directions of not holding any board meetings till genuine and legit investors (in compliance of the RBI norms) are presented to the regulatory authorities,” Agarwal said.

He also said that he has sought a forensic audit of the entire fund raising exercise conducted till now. However, no action has been taken on this front, he said.