The board of Yes Bank approved a Rs 8,898 crore ($1.1 billion) investment by private equity investors Advent and Carlyle, ending months of negotiations and marking another step on the way to the lender’s full recovery.
The investment will be split into two —59% will be through an upfront payment for equity and the remaining 41% will be through warrants that get converted into shares after 18 months. However, since the warrants are also being issued on a preferential basis, the investors will pay 25% upfront. The bank will get an immediate capital infusion of Rs 6,044 crore.
Upon full conversion of the warrants, Advent and Carlyle will end up owning 9.99% each of the bank on a fully diluted basis.
Advent and Carlyle have applied to the Reserve Bank of India (RBI) for one board seat each, said people with knowledge of the matter. The RBI has given in-principle approval for the investments, they said.
The bank has called for an extraordinary general meeting (EGM) on August 24 to seek shareholder approval for increasing the authorised share capital, consequent alterations to the capital clause of the memorandum of association and an amendment to the Articles of Association along with the preferential allotment. Also to be approved are the appointment of former RBI deputy governor R Gandhi as independent director. Extension of Prashant Kumar’s tenure as interim MD and CEO along with remuneration is also on the agenda.
ET was the first to report on February 4 and March 4 about Advent and Carlyle being in discussions with Yes Bank for a potential $1 billion investment. On July 22, ET reported that the announcement was imminent as the banking regulator had approved the transaction.
“What we are doing today is a validation of what the bank’s management and RBI have done to turn the bank around,” Sunil Kaul, financial services sector lead for Carlyle in Asia, told ET. “The bank’s digital capabilities, its increased focus on retail, transaction banking and SME lending as opposed to the legacy dependency on wholesale is what attracted us. Its governance structure, risk assessment have undergone a sea change.”
In the past Carlyle has invested in banks in South Korea, the US, Taiwan and Nigeria.
“Overall, we remain committed to the India story,” Kaul said. “We believe well-capitalised banks will gain the most and we will support the management in their endeavour.”
Deal Details
To start with, Yes Bank will issue 3.7 billion new shares of Rs 2 face value each at a price of Rs 13.78 apiece via preferential allotment to the two investors. This will translate to an aggregate Rs 5,095 crore equity investment, giving the two PE investors a 5.9% stake each in the bank. Subsequently, the bank will issue 2.57 billion warrants that will get converted into equity in 18 months at Rs 14.78 a share. This is at a slight discount to the current share price. Bank of America was advisor to Yes Bank on the deal.
Yes Bank ended Friday at Rs 14.94, up 2.47%, with a market capitalisation of Rs 37,432 crore on the BSE. The stock has appreciated 14.5% in the past month in anticipation of the transaction.
Following the deal, the State Bank of India(SBI) stake will fall to just above 26% from 30% now and upon conversion of the warrants it will hold 23% in the bank. The core capital of the bank measured in terms of tier I capital will improve to 14.5% from 11.9% at present.
“India’s banking sector is at an inflection point where tech-enabled banks like Yes Bank have an advantage,” said Advent managing partner Shweta Jalan. “This investment also demonstrates our commitment to the country’s banking and financial services industry, which is the core of India’s growth story.”
The fund’s financial services investments include Aditya Birla Capital, a holding company for the financial services businesses of the Aditya Birla Group, and ASK Investment Managers Pvt. Ltd. In the past 12 months, Advent has bought controlling stakes in Eureka Forbes, global digital engineering services company Encora and Avra Labs.
“This is a testimony to the inherent strength of the bank’s franchise,” said Yes Bank CEO Kumar. “We are excited about the incremental opportunities that this partnership creates for us and confident that both the investors will play a crucial role in the next growth phase of the bank.”
Bank of America was advisor to Yes Bank.
Turning A New Leaf
Deal negotiations had gathered pace following the recent decision on the sale of the lender’s stressed assets and the proposed constitution of a new board. Even though discussions began at the start of the calendar year, the board revamp announcement was a spur for new investors to enter. It signalled that the private lender was ready for a makeover, given that restrictions imposed as part of the revival process are being lifted.
The RBI announced last month that Yes Bank would exit the reconstruction scheme, following which a new board would be formed. This is almost eight months ahead of the revival plan’s three-year timeframe. For shareholders, though, the embargo on trading may not be lifted until March 2023.
Secondly, the proposed sale of the Rs 48,000 crore, non-performing asset (NPA) portfolio further gave confidence to the street and the incoming PE investors.
Advent, like Blackstone and Brookfield, was among a handful of private equity investors that had explored buying into the bank before SBI came to its rescue.
The proposed investment could be similar to Bain Capital’s investment in Axis Bank that saw the Boston-based private equity firm lead a $1.8 billion investment.
Source: Economic Times