Lack of mar­quee in­vestors hits YES Bank shares, bonds

Business Standard - - FRONT PAGE - HAMSINI KARTHIK & DEV CHAT­TER­JEE

Lack of mar­quee in­vestors and fear that the Re­serve Bank of In­dia (RBI) will not clear the in­vest­ments by the new in­vestors hit the share price of YES Bank on Mon­day. The bank’s stock closed 6.2 per cent down at ~64 a share. The bank’s dol­lar bonds due in Fe­bru­ary 2023 also fell the most in two months.

On Fri­day evening, the bank had an­nounced that its board had agreed to raise $2 bil­lion from an as­sort­ment of in­vestors. Of this, $1.2 bil­lion will come from Canada-based busi­ness­man Er­win Singh Braich and SPGP Hold­ings. The se­cond big in­vest­ment was com­ing from CI­TAX Hold­ings.

The bank had not re­vealed Braich’s name for nearly a month, say­ing it had re­ceived a bind­ing of­fer from an in­vestor.

While there was spec­u­la­tion over sev­eral big, mar­quee names, in­vestors were dis­ap­pointed with Braich, who is vir­tu­ally un­known in In­dia.

When he was 20 years old, Braich, now 62, had left

Si­mon Fraser Univer­sity in

Burnaby, Bri­tish Columbia, to as­sume con­trol of his fa­ther ’s busi­nesses.

Ac­cord­ing to a me­dia state­ment is­sued on Jan­uary 2,

2013, he built his fam­ily busi­nesses into a mul­ti­mil­lion dol­lar con­glom­er­ate, ex­pand­ing what his fa­ther, a mi­grant from

In­dia, had be­gun.

The state­ment was is­sued af­ter Braich filed a law­suit against the Pub­lic Pros­e­cu­tion Ser­vice of Canada and the Royal Cana­dian Mounted Po­lice af­ter the lat­ter threat­ened to ar­rest him on mi­nor charges re­lated to bank­ruptcy pro­ceed­ings.

This was not the first time that Braich had al­leged that the process had been abused by the Crown and the Royal Cana­dian Mounted Po­lice. Both set­tled out of court with Braich, in dif­fer­ent pieces of lit­i­ga­tion, in Seat­tle in 2007, the state­ment had said.

In 2013, Braich’s lawyer Jamshed Mistry was quoted as say­ing the net ag­gre­gate value of Braich’s trusts makes him the se­cond-rich­est per­son in Canada and one the top three wealth­i­est In­di­ans in the world, along with Mukesh Am­bani of Reliance In­dus­tries and Lak­shmi Mit­tal of Arcelormit­tal.

But like Ratan Tata, Braich also con­ducts his busi­ness ac­tiv­i­ties through var­i­ous trusts and does not ap­pear on in any list of bil­lion­aires, Mistry had said.

Other court fil­ings in Canada show that in 1999, Braich was sent to bank­ruptcy court and had de­clared zero as­sets.

YES Bank’s other big in­vestor, CI­TAX Hold­ings, which has promised to in­vest $500 mil­lion, had only $26,000 as share­hold­ers funds, ac­cord­ing to its last bal­ance-sheet filed with UK reg­u­la­tors, Bloomberg re­ported.

The fam­ily of­fice of GMR Group pro­mot­ers has also promised to in­vest $25 mil­lion into the bank even as sev­eral group com­pa­nies have de­faulted on loans to In­dian lenders and sev­eral power projects of the group are seek­ing loan-re­struc­tur­ing from pub­lic sec­tor banks. “Given the kind of names an­tic­i­pated to pick a stake in the bank, what has ac­tu­ally come through is a dis­ap­point­ment,” said an an­a­lyst with a for­eign bro­ker­age. The larger worry, as Suresh Gana­p­a­thy of Mac­quarie Cap­i­tal said, is whether these in­vestors will get the reg­u­la­tor’s nod to buy such large stakes in a bank.

Reg­u­la­tions per­mit an in­vestor to ac­quire 4.99 per cent stake in a bank through the au­to­matic route, while an in­vest­ment of 10 per cent or more will re­quire the con­sent of the RBI. These in­vestors gen­er­ally get a place in the board of a bank and hence pass­ing the “fit and proper” cri­te­ria is im­por­tant.

SPGP Hold­ing, Braich, and Ci­tax have opted to buy 60 per cent and 25 per cent of the shares of in the cur­rent round of $2-bil­lion fundrais­ing. Ci­tax also did not bring in ~10 crore as se­cu­rity for Na­gar­juna Oil, which is also fac­ing in­sol­vency pro­ceed­ings. Gana­p­a­thy said the fi­nan­cials of Ci­tax based on reg­u­la­tory fil­ings in the UK was not very en­cour­ag­ing. One of the rea­sons an­a­lysts have given for YES Bank not get­ting mar­quee for­eign in­vestors as it did in the past, is the un­cer­tain­ties around the as­set qual­ity plagu­ing the bank for at least a year. At 7.4 per cent gross non-per­form­ing as­sets ra­tio, YES Bank’s as­set qual­ity is the weak­est among top pri­vate banks.

“Large in­vestors may pre­fer to stay away from the YES Bank stock un­til they can take a view that the worst is be­hind the bank,” said Nilesh Shah of En­vi­sion Cap­i­tal.

Also, as the cur­rent round of fund rais­ing in­creased from the ear­lier pro­posed $1.2 bil­lion to $2 bil­lion an­a­lysts see it to be con­sumed for an­other round of as­set qual­ity clean-up. The RBI’S in­spec­tion re­veal­ing ~3,277 crore of divergence in NPA re­ported for FY19, of which ~632 crore is ex­pected to be made in December quar­ter could keep pro­vi­sion­ing costs higher for FY20. Gana­p­a­thy an­tic­i­pates the bank to raise an­other $3-3.5 bil­lion in the next 18 months. This means that in­vestors of the bank could be faced with an­other round of huge cap­i­tal di­lu­tion.

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