PE firms eye Yes Bank stake

Mumbai: The biggest names in global private equity — TPG, The Carlyle Group and Farallon Capital — are seeking to buy large strategic stakes in Yes Bank, the private sector lender where all pledged shares have now been sold and business fundamentals present a compelling value proposition at current market price.

The talks have advanced substantially in the past few days and they could result in one or more private equity firms taking a significant stake in the bank, providing the growth capital the lender needs to compete at the top-tier of Indian banking.

“These three private-equity funds are in constant touch with the bank and look very keen on a stake. But there is a lot of work to be done,” said a banker with direct knowledge of the negotiations.



Bank Looking at Three Groups of Investors: CEO Ravneet Gill

Yes Bank, TPG and Carlyle didn’t comment on ET’s query. Farallon did not respond to ET’s mail till press time.

Yes Bank has been looking to raise capital to help fund growth and improve asset quality, and shake off the pledged-shares overhang that had caused its stock price to decline. After the lender said that sales related to the pledged stock were over, Yes Bank climbed the most last week, with the management saying that declines over the recent past didn’t reflect the lender’s business fundamentals.

In an interview to ET last week, Yes Bank CEO Ravneet Gill said that private equity was one of the categories of potential investors.

“We are looking at three constituencies of investors — private equity, strategic and large Indian family offices. Given that the market cap has come down and the dilution would be larger, I think it will have to be a mix of investors from each of the buckets because there will be restrictions on how much one investor can hold,” Gill had said. “But the quality of investors and ability to invest serous money into the bank is unquestionable with respect to each one of these. What we are seeing is not only which of these brings in growth capital but which will also help the bank transform to what it wants to become.”

At current market price of Rs 42.15 on the National Stock Exchange (NSE), Yes Bank is the least expensive among the top-tier privatesector lenders on the parameter of book Value. It is trading at a price-to-book ratio of 0.4, compared with 4.22 for HDFC Bank, 5.16 for Kotak Mahindra Bank and 2.27 for ICICI Bank.

To be sure, Yes Bank has had to encounter deterioration in asset quality in the June quarter as well. Gross NPAs increased to Rs 12,092.10 crore, or 5.01 per cent of loans, as on June 30, compared with 1.31 per cent a year ago. So, first-quarter net profit dropped 91 per cent to Rs 114 crore from Rs 1,260 crore a year ago, with provisions for bad loans increasing three-fold to Rs 1,784 crore in the June quarter.

The decline of more than 80 per cent in the stock’s value in FY20 might mean equity dilution of 30 per cent to 35 per cent, Gill had said last week. He also requested the central bank to relax the 5 per cent per shareholder limit holding in light of the large dilution expected by the bank.

“We have had conversations with the Reserve Bank, given the amount of capital we want to raise. As a percentage of existing market cap, that could be large: So (we requested) the (central bank) to consider a dispensation with respect to a larger holding,” Gill said last week. “The RBI has been non-committal. It said it will consider that as and when we approach the central bank formally.”

Yes Bank had raised Rs 1,930 crore through a qualified institutional placement (QIP) in August, an exercise that increased Tier I capital ratio above the mandatory 8 per cent.

Last week, Yes Bank also clarified on its liquidity position.

“The bank had a liquidity coverage ratio in excess of 125 per cent as on September 30, 2019, which is well above the minimum regulatory requirement of 100 per cent,” it said.