Yes Bank has embarked on a plan to generate $285 million (Rs 2,000 crore) by selling shares through a qualified institutional placement (QIP), the success of which will be crucial for the bank's survival, said people with knowledge of the matter.
The sale to institutional investors - scaled down from an earlier plan to raise as much as $1 billion - opened on Thursday evening.
The bank has set a floor price of Rs 87.9 per share for the issue, with a proposed discount of not more than 5 per cent, depending on demand from investors in India and aboard. Yes Bank ended at Rs 89.15 apiece on Thursday, up 2.65 per cent.
Local investment banks JM Financial and Motilal Oswal as well as Hong Kong-based CLSA are managers to the sale. The issue, which opened after trading hours in Mumbai, is likely to stay open through the night to attract interest from investors in Europe and the US.
Yes Bank said in a notice to exchanges that a committee will meet on August 16 to consider and approve the issue price and final discount.
"This is a very crucial issue for the bank," said a person closely involved with the issue. "In fact it won't be wrong to say that it will be a miracle if the bank manages to raise money at all. These are tough times and the bank needs capital to survive."
The bank's core Tier I capital ratio declined to 8 per cent in June 2019, precariously close to the minimum regulatory requirement of 7.375 per cent for the year ended March 2019 and 8 per cent for that ending in March 2020.
The bank had originally intended to raise as much as $1billion. However, it had imposed a restriction on the maximum dilution, setting it at 10 per cent of the paid-up equity capital.
"Since Yes Bank's market cap has fallen to about Rs 20,000 crore, it cannot raise more than Rs 2,500 crore on the expanded equity base," said another person involved in the deal on condition of anonymity.
The bank resolution had said: "The aggregate amount raised shall not result in increase of the issued and subscribed equity share capital of the bank by more than 10 per cent of the then issued and subscribed equity shares of the bank."
The bank has been plagued by asset-quality woes. In the quarter ended June, Yes Bank had to set aside Rs 1,109 crore as market provision on bonds issued by Dewan Housing Finance Corp (DHFL) and the Anil Ambani-led Reliance Group, which were both outside the bank's Rs 10,000 crore watch list, raising concerns about the bank's assetquality guidance.
Investors committed to subscribe to the issue include HDFC Mutual Fund, Aditya Birla Mutual Fund and UK's Ashmore Investment Management. Expectations are that the bank will need to raise an additional Rs 8,000 to Rs 10,000 crore in the current fiscal, as the first tranche would not be sufficient to meet its capital requirement, said the people cited above.
The bank will seek separate approval from the board and shareholders for the second tranche that will be raised through a combination of rights and fresh shares, sources said. It could dilute part of its equity base by selling a stake to a private equity fund after this current round of dilution, which will most likely be used for provisioning requirements, said one of the persons cited above.
The bank is hoping that some kind of resolution regarding the Reliance Group, DHFL and Essel Group will lead to a write-back that could improve profitability and put it on a firm footing for another capital-raising exercise later this fiscal.
"The bank needs about Rs 10,000 crore that it has to raise in the current fiscal so that it can maintain a strong capital adequacy ratio to foster growth," said one of the persons cited above.
Sources said that the second round of fund raising of an additional Rs 10,000 crore is likely to be through a rights issue.
"A rights issue on the lines of the recently concluded Bharti Airtel's rights issue is on the cards," said the person cited above.
"In the proposed second round of funding, existing investors and promoters will be given options to retain their shareholding. This can be done at a discount to the then prevailing market price. In case they do not participate, then it will be renounced to the new investors."