Yes Bank’s plan to bring Carlyle and Advent on board as equity investors for about $1 billion has gathered pace, following the proposed sale of the lender’s stressed assets to JC Flowers Asset Reconstruction Company and the constitution of a new board, said people in the know.
Carlyle’s top brass from Hong Kong along with Advent’s leadership have held a series of meetings this week with the senior management of Yes Bank and the State Bank of India (SBI), the largest shareholder of the private lender, as well as Reserve Bank of India (RBI) officials to fine-tune the contours of the plan, which will be undertaken in phases.
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.
Advent and Carlyle declined to comment. Yes Bank and SBI didn’t respond to queries.
The proposed investment could be similar to Bain Capital’s investment in Axis Bank that saw the Boston-based private equity firm lead a consortium to invest $1.8 billion.
Deal Dynamics
To begin with, Yes Bank is expected to issue around 2.6 billion warrants and allot new shares to Carlyle and Advent via preferential allotment.
The two PE funds are looking to cumulatively invest ₹3,600-3,900 crore (at ₹14-15 per share) and end up owning 5% each of the expanded equity base. The warrants will get converted into shares in future based on a pre-agreed strike price and timeline, typically 18 months.
“The management believes the stock is undervalued but for investors, the current share price or a 52-week price average are the best benchmarks,” said one of them.
Bank has Got Informal RBI Nod
“In the last one year, from a high of ₹16.25 per share, it has seen a 55% drop to Rs 10.51 per share.”
Yes Bank ended up 5% at ₹14.29 on Thursday for a market capitalisation of ₹35,803.57 crore on the Bombay Stock Exchange.
Yes Bank can issue a maximum of 3.8 billion warrants, so that SBI’s stake remains at 26%. As per the regulator-approved revival scheme, SBI’s stake in the bank cannot fall below the 26% threshold before March 2023. Currently, the largest state lender owns 30% of Yes Bank.
If the warrants are issued on a preferential basis, then as per the rules, last six months’ average price becomes the floor of the strike price for the warrant.
The transaction is expected to take place once the deal with JC Flowers concludes and shareholder approval for the new board members comes through, expected by September at the latest.
After April 2023, the bank will issue another tranche of new shares as per the proposal, less than the first tranche to both investors. Under the Banking Regulation Act, an investor can acquire up to 5% stake in any bank without RBI approval.
However, Yes Bank management has received informal approval from the regulator regarding new investors, said some of the people cited above. Once the transaction concludes by the end of this fiscal year, the two new investors will also get a board seat each. At Thursday’s exchange rate, since the bank is aiming to raise ₹8,000 crore ($1 billion) or even ₹10,000 crore as it had envisaged before, then each of the investors may end up owning anything 5%-9.9% each of the bank’s expanded equity. But that discussion is still ongoing, added sources involved directly.
Even though discussions began at the start of the calendar year, the reconstitution of the board was a precursor for the new investors to step in. It signals that the private lender is ready for a makeover, given that the earlier restriction imposed under the reconstruction process was removed.
RBI announced early last month that Yes Bank would exit the reconstruction scheme, following which a new board will 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.
