With stake sales, Yes Bank is now poised for a makeover
Yes Bank’s shareholding structure may witness a major churn by the year-end as founder Rana Kapoor has initiated talks to sell a part of his holding to One97 Communications Ltd, the parent of Paytm and Paytm Payments Bank.
Independently, a Reuters story on Tuesday cited Yes Bank CEO Ravneet Gill as saying that the bank is close to selling a minority stake to a global tech company as part of its capital-raising exercise. Although the bank subsequently denied these reports, Mint has independently verified that such talks might have indeed progressed somewhat.
The tech firm’s association is expected to help further the bank’s digital ambitions.
The bank has already been talking to large private equity firms for capital infusion. On 30 August, Yes Bank’s board proposed to increase the bank’s authorized share capital from Rs 800 crore to Rs 1,100 crore to enable an expansion in the paid-up capital.
If Rana Kapoor does manage to sell his stake to One97 Communications, or any other shareholder, it will not make any difference to the bank’s capital structure. Fresh equity issuance, on the other hand, will lead to dilution in promoter shareholding.
According to senior executives at Yes Bank, the promoters are willing to reduce their shareholding following this stake sale and also amend the articles of association, letting new shareholders get a board seat.
“We are open to reducing stake if the bank decides to sell a minority stake to a global tech firm,” Shagun Gogia told Mint. Gogia is co-promoter Madhu Kapur’s daughter and an additional director on the Yes Bank board. Madhu Kapur and her offices hold 9.17% stake in the bank, as of 30 June.
Rana Kapoor and his family offices hold 10.6% stake in the bank. A person close to Yes Bank’s co-promoter Rana Kapoor’s family said the stake sale to One97 would be completed through the stake held by Kapoor and his promoter group entity Morgan Credits Pvt. Ltd (MCPL); the combined holding of these two entities in Yes Bank is around 7.34%.
“There have been discussions between Kapoor, Yes Bank and several fintech firms including One97 Communications Ltd since August,” said the person cited earlier.
A statement issued by the bank to stock exchanges said: “The Bank in its usual and ordinary course of business continues to explore various means of raising capital/funds through issuance of securities to diverse set of investors, in order to meet its business/regulatory requirements, subject to compliance with prescribed procedures and receipt of statutes/regulatory approvals.”
A One97 Communications spokesperson declined to comment on the story. Kapoor also declined to comment on this story. An email sent to Yes Bank also did not elicit a response.
If true, the deal will require RBI’s approval, given that One97 holds the licence for a payments bank. Questions are bound to be raised over whether the licence holder of a payments bank should be allowed to acquire a stake in a universal bank as it might be seen as a workaround. In addition, the widening of One97 Communication’s losses, as reported in Mint on Tuesday, is bound to weigh on the approval process.
Kapoor and MCPL also need to obtain consent from Reliance Nippon Life Asset Management Ltd (RNAM) to sell their stake, given that around 7.34% is pledged with RNAM. When contacted, an RNAM spokesperson said, “Reliance Nippon Life Asset Management has not given any consent and is not in discussion with anyone about Yes Bank’s pledged shares.”
Yes Bank co-promoter Rana Kapoor and his family-owned firm MCPL had to pledge their entire 7.34% or 170.25 million shares with RNAM. This was done because RNAM wanted to convert a previously unsecured loan (given to MCPL through non-convertible debentures) into a secured loan as the bank’s stock has lost 80% over the past year.
Last year, MCPL raised Rs 1,160 crore by selling non-convertible debentures to RNAM. A prepayment of ₹200 crore was made by MCPL to Reliance MF in November. The loan pact mandates that the value of Yes Bank shares (held by Kapoor and MCPL) should always be greater than double the loan outstanding.
The value of these 170.25 million shares as on Tuesday is around Rs 1,182.13 crore.
Yes Bank is in desperate need of fresh capital to improve its common equity tier-1 (CET-1) ratio adequately above the statutory requirement of 7.375% to stay afloat. The bank’s CET-1 ratio is marginally above this at around 8.6% after it completed its Rs 1,930 crore stock sale to institutional investors last month.
On 16 August, Mint reported that the bank is looking to raise an additional $600 million after raising $270 million from large investors through a qualified institutional placement.
The Yes Bank stock has been falling steadily since RBI indicated in August 2018 that Kapoor’s term as the bank’s CEO would not be renewed after January 2019. Since 20 August last year, Yes Bank shares have lost over 80% to Rs 63.10 as of Monday on the BSE.
Both MCPL and Yes Capital (India) Pvt. Ltd (which holds 3.26% in the bank) are fully owned by Kapoor’s three daughters.
In September 2018, after Yes Bank co-promoter Madhu Kapur sold a part of her holding, Rana Kapoor had tweeted how he regarded his shares as “diamonds”.