Time running out fast for YES Bank as it scouts for a new investor

Topics YES Bank | Ravneet Gill

Yes Bank Ltd. shares tumbled the most in two months after its board deferred an announcement on new investors, prompting a warning about the risks to the Indian financial system if the lender is unable to quickly bolster its capital.

The Mumbai-based lender said its board failed to reach a final decision on potential investors at a meeting on Tuesday, though it favored a $500 million offer from Citax Holdings Ltd. Yes Bank is still reviewing another $1.5 billion of bids from parties including Canadian businessman Erwin Singh Braich, it said in a filing.

“If the bank is unable to raise money in the next six months, it poses a grave danger to the financial system,” Suresh Ganapathy, an analyst at Macquarie Capital Securities (India) Pvt., wrote in a note.

The bank’s board didn’t make a final decision on investment from Citax as it is expecting one more investor to commit in the next few days, Yes Bank’s Chief Executive Officer Ravneet Gill said in an interview in Mumbai on Wednesday. The lender wants to club both those deals together to raise more than $500 million at the same time, he said.

“My message to the market is don’t believe that the message that we have in the disclosure was a tactic to buy time. We are not buying time,” Gill said. “There is no reason to panic at all.”

Yes Bank is staggering under the weight of soured loans, including to firms caught up in a deepening shadow banking crisis. Any bank collapse in India would be far more serious than the failure of non-bank financial firms because it would choke up the financial system and hurt economic growth that’s already at a more than six-year low, Ganapathy said.

Shares of Yes Bank slid 15 per cent on Wednesday, the biggest decline since Oct. 1, after dropping 10 per cent in the previous session. The bank’s 3.75 per cent dollar notes due February 2023 declined 3 cents on the dollar to 80.3 cents, the most since Oct. 2, according to prices compiled by Bloomberg.

With core equity capital barely above the regulatory minimum of 8 per cent, the bank needs to raise funds to provide for the bad debts and expand lending.

The bank is in advanced talks with “well-capitalized” financial institutions which invest in the technology space for a strategic stake sale, Gill said in the interview. One could be an anchor investor with a 10 per cent stake, with others taking less than 5 per cent, he added.

The board meeting came less than two weeks after the bank revealed the names of potential buyers including Braich, who has faced multiple lawsuits and soured deals. Yes Bank shares have now dropped more than 40 per cent since the Nov. 29 announcement as investors queried the credibility of some of the offers and whether the Reserve Bank of India would approve them.

The past year has been tough for Yes Bank after the RBI asked co-founder Rana Kapoor to step down as CEO over concerns about bad-loan disclosure and corporate governance. While Gill has stepped up efforts to clean the balance sheet, investors remain wary of the quality of the loan book and the lender’s ability to raise capital quickly.

“Time is of the essence for Yes Bank,” said Gaurang Shah, vice president, Geojit Financial Services Ltd. The management needs to do some “serious thinking.”

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