YES Bank’s ~15k-cr issue sees poor anchor investor demand

Tilden Park applied for half of the book; LIC, SBI may have to bail out the FPO, say sources

Allotments are made to ‘anchor investors’ before an initial or follow-on public offering (IPO or FPO) to demonstrate strong demand for shares among institutional investors. However, the underlying message from YES Bank’s allotment was that raising ~15,000 crore could be a tall ask.

For one, the shares had to be allotted at the lower end of the price band of ~1213 per share. Despite that, the amount available under the anchor category remained undersubscribed. Also, domestic mutual funds (MFS), which tend to corner a large portion of shares in the anchor book, stayed away.

Sources say the bank has sounded out state-owned insurance giant Life Insurance Corporation (LIC) and State Bank of India (SBI), the largest shareholder of the bank, to keep powder dry to make up for any possible shortfall in demand during the FPO.

YES Bank on Tuesday allotted ~4,100 crore worth of shares to a dozen institutional investors in the anchor category. It’s FPO size is ~15,000 crore. Half of this is meant for so-called qualified institutional buyers (QIBS), and 60 per cent of the QIB portion can be allotted to anchor investors. As a result, up to ~4,500 crore worth of shares were available under the anchor book. Also, a third of the anchor book, ~1,500 crore, is reserved for domestic MFS. However, there were barely any MF bids in the anchor category.

If not for Tilden Park, the anchor demand would have been even more underwhelming. The Us-based asset manager applied for shares worth ~2,250 crore, half of the total shares available under the anchor book.

Sources say because of the poor demand, YES Bank’s capital raising committee (CRC) had to allot shares at ~12 per share, instead of the earlier projection of ~13 per share.

Industry observers say this is a rare instance where shares are issued at the lower-end to anchor investors.

“The message from the anchor allotment isn’t positive. YES Bank may struggle to garner full subscription if retail investors don’t participate,” said an investment banker, asking not to be named.

About ~5,000 crore worth of shares are reserved for retail investors. SBI has board approval to invest ~1,750 crore in the FPO. Sources say LIC also might invest between ~1,000 and ~1,500 crore, depending on how the demand pans out. An FPO has to garner at least 90 per cent subscription to sail through.

Shares of YES Bank ended at ~20.5 on Wednesday. Market players say if the secondary market price holds, retail and wealthy investors looking to make listing gains might be tempted to apply.

However, analysts aren’t bullish on the stock. Last week, Macquarie issued a note on the bank with a price target of ~8 per share and an ‘underperform’ rating. The brokerage believes raising ~15,000 crore wouldn’t be sufficient.

“We believe that the capital YES Bank is planning to raise could largely go to meeting regulatory requirements and making provisions for NPAS,” said Suresh Ganapathy, analyst, Macquarie. “Thus, we estimate the total requirement, without even considering growth capital requirements, is around ~23,000 crore. The bank also has not been making much of an operating profit for the past two quarters.”

Angel Broking on Tuesday, in a note, issued a ‘neutral’ rating to the issue.

“At the upper end of the price band, YES Bank demands price-to-book (on adjusted basis) of 0.85 times post considering FPO. In current market, other banks are trading at attractive valuation of FY20 net worth, including IDFC Bank (0.9x), SBI Bank (0.5x core banking business), Federal Bank (0.9x),” it said.