Paytm or no Paytm, Yes Bank needs much more capital

Paytm or no Paytm, Yes Bank needs much more capital

There are other options available to new strategic investors to buy directly from the Yes Bank as it needs capital and more equity dilution is on the card

'Diamonds are forever.' tweeted Rana Kapoor, the co-founder of Yes Bank and the then CEO in September 2018 when the Reserve Bank cut short his tenure amidst allegations of lapses in compliance and governance. "I will eventually bequeath my promoter shares to my three daughters and subsequently to their children, with a request in my will stating not to sell a single share, as diamonds are forever!'  Kapoor wrote in his subsequent tweet. Now there are reports that Kapoor is in talks with Vijay Shekhar Sharma's Paytm for a Rs 2,000 crore stake sale.

Yes Bank CEO Ravneet Gill, however, hinted that they are close to selling a minority stake to a global technology firm. Since September last year when Kapoor made those comments, much water has flowed, with the bank stock price crashing. The stock tumbled from Rs 339 to Rs 183 in September alone when Kapoor's exit announcement became a reality. Currently, it is at Rs 63 per share. The bank is still struggling with asset quality deterioration.

Kapoor along with two promoting firms -- Yes Capital and Morgan Credit - currently holds 9.64 per cent in the bank. This is valued at Rs 1,550 crore based on current valuations. Given the further equity dilution going forward, there is likely to be more pressure on the stock price as earning per share (EPS) and return on equity (ROE) will be impacted. A part of the promoters stake is also pledged which means money won't come to Kapoors if they try to sell the stake.

ALSO READ: Yes Bank's Rana Kapoor in talks with Vijay Shekhar Sharma to sell stake in bank

In fact, there are other options available to new strategic investors to buy directly from the bank as it needs capital and more equity dilution is on the card. This is something CEO Gill has also hinted to raise growth capital from a global technology firm.

Kapoor's stake will only go down further as more equity dilution takes place. The last equity offering was a big struggle as some 41 funds participated to give just Rs 1,950 crore. The bank's estimated capital requirement is over Rs 10,000 crore, which it plans to raise in a staggered manner so as to avoid any impact of equity dilution. Global fund Key Square invested Rs 425 crore through its two schemes. Societe Generale brought in Rs 361 crore. HDFC Mutual Fund through its four equity schemes invested Rs 300 crore. BNP Paribas through its Arbitrage Fund applied for Rs 278 crore.

The remaining money came from numerous schemes. There were funds like Ashmore, Atlas, Aurigin, Doric, Montlake, Tosca, Vittoria etc.

The domestic mutual fund industry actually brought in a quarter of the total fund requirement. Surprisingly, the HDFC Fund house has invested a big chunk through its schemes. Aditya Birla Mutual Fund also invested in the bank. Edelweiss Tokio Life Insurance also invested in the bank through its close to a dozen schemes.

ALSO READ: YES Bank close to secure a deal to sell minority stake to global tech firm: Ravneet Gill

The investment is not so rewarding, though it is too short a period, as the price has fallen 28 per cent in a month's time. These funds acquired the stake at Rs 83.55 per share and the price has fallen to Rs 60. Morgan Stanley has already revised its stock price estimate to Rs 55 per share.

The recent QIP has helped the bank to raise its core equity to 8.6 per cent, but more doses of fresh capital is needed to kickstart growth. While there is uncertainty on the NPA front as there is a large watch list, new investors would look for a bargain price to get into the bank, which is not in the best shape. Paytm or no Paytm, the bank urgently needs more capital.