YES Bank board may take a call on Monday to raise Rs 10,000 cr via FPO

The YES Bank board is meeting on Monday to take a call to raise up to Rs 10,000 crore via a follow-on share sale to help boost its capital base. 

The bank is likely to file for its offer document soon after the board clears the fundraising plan. The shares for the FPO (follow-on public offer) will be priced as per the Securities and Exchange Board of India (Sebi) formula.

YES Bank closed at Rs 28 a share on Friday, giving it a total market valuation of Rs 35,141 crore.

An email sent to YES Bank did not elicit any response.

The bank has received offers from foreign portfolio investors (FPIs) to buy up to 9.98 per cent stake and some of them plan to convert it into unsponsored American Depository Receipts (ADRs), said a source close to the development. 

According to the plan submitted to the banks, which hold stakes in YES Bank after the ailing lender’s bailout, the FPIs will first acquire YES Bank shares and some of these FPIs then plan to place these shares as underlying cover for the unsponsored ADRs. The route will require clearance from both the Reserve Bank of India and Sebi. 

“Once shares are acquired, one of the investors is keen to appoint a custodian for the unsponsored ADRs and get them listed on the OTCQX in the US. Registration is not required for underlying securities listed on recognised foreign stock exchange following Rule 12(g) of the Securities Act of the US,” said a source close to the development. 

The bank has immediate fund requirements after auditors pointed out that it has breached several covenant norms and is short of capital. The bank, now under new management, has promised to raise up to Rs 15,000 crore to boost its capital, which was eroded by a huge bad debt accumulated under the previous management.

The auditors said the bank had breached minimum statutory liquidity ratio (SLR) and liquidity coverage ratio requirements of RBI during fiscal year 2020 and has provided Rs 334 crore for the expected penalty on the SLR breach.

The fund infusion is necessary for the bank as it had to make an additional provision of Rs 15,422 crore for the quarter ended December 2019. This was based on an evaluation of the status its NPAs (non-performing assets) based on discussion with the regulator over and above the RBI norms relating to the minimum provisioning to be made by banks on their loans and advances. 

The bank is grappling with defaults by several borrowers, including CG Power, Anil Ambani group entities, Essel group, Cox & Kings, Dewan Housing, and other real estate companies. All the loans were granted to these companies when the bank was run by its former promoter Rana Kapoor, who is now in judicial custody for alleged money laundering. The Enforcement Directorate has estimated total fund diversion worth Rs 5,050 crore by Kapoor.

Several banks and institution led by State Bank of India infused Rs 10,000 crore in the bank in March this year so as to keep it afloat.