FPIS to pick $300-million stake in YES Bank
A group of Us-based foreign portfolio investors (FPIS) is looking to pick up a stake worth $300 million in YES Bank by investing in its forthcoming share sale via the structured, unsponsored American Depository Receipts (ADR) route. The FPIS are in advanced talks with an Indian bank for it to act as custodian.
In October last year, the Securities and Exchange Board of India (Sebi) came up with a detailed framework for issuing depository receipts by listed companies in India. The framework allows local firms to access foreign funds with conditions attached.
Sponsored ADRS are those that a bank issues on behalf of a foreign company, whose equity is the underlying asset.
These investors have sought clarification from Sebi about whether they can invest in YES Bank share sale taking the unsponsored ADR route.
YES Bank, India’s sixthlargest private sector lender, is set to raise ~10,000 crore in the next few weeks and will file its prospectus with the markets regulator this month.
The bank had to raise capital from a slew of investors in March this year after its bad debt rose sharply and deposits declined by over ~1 trillion.
After the Reserve Bank of India’s intervention and with a new management in place, the bank managed to raise ~10,000 crore from State Bank of India and from other investors, including ICICI Bank, HDFC, Axis Bank, Kotak Mahindra, Bandhan, Federal, and IDFC First.
Since then, the bank has provided for ~32,500 crore against a maximum estimated loss of ~25,500 crore, according to a statement by the bank to the stock exchanges on Wednesday.
The Us-based new investors have indicated to the management that they would like the bank to clean up its books first so that they can invest in the bank in the follow-on offer.
The FPIS are also in talks with Citibank to act as the depository bank to issue ADRS for listing in the US over-thecounter market. “This route would eliminate the involvement of YES Bank from the US
Price in ~ 70
Securities and Exchange Commission’s (SEC’S) rules. It allows a foreign listed company to avail of exemption from SEC registration and the investor avoids an expensive buying and selling process,” said a banker close to the transaction.
At present, NRIS are not allowed to invest in sponsored ADRS. They can, however, invest in unsponsored ADRS as the instrument is Us-based and regulated by the SEC.
This opens up a huge market for investors and helps a selfdirected retirement asset client to buy ADRS in the US itself without having to get into a cumbersome process or invest directly in India, said the banker.
The fundraise would be as a shot in the arm for the bank, which has incurred a loss of ~16,418 crore for the year ended March 31, 2020 (FY20).
According to the bank’s auditor, during the last six months of FY20, there has also been a significant decline in the bank’s deposit base, an increase in its non-performing asset ratios, which finally resulted in breach of loan covenants on its foreign currency debt.