- We had to work with a more limited planned universe while raising funds.
- The investors should be given the chance to provide their position.
- We are raising $2 bn which is more than what Street had expected.
We have every reason to believe that the family office of Erwin Singh Braich has the resources to be able to make $1.2 billion investment. of this size. They want to be long-term investors, but they want to be financial investors, says Ravneet Gill, CEO & MD, YES Bank. Excerpts from an interview with Nikunj Dalmia of ETNOW.
The names of the not-so well known investors that YES Bank has given for the $2-billion fund raise, have not impressed the market much. Also, there is worry whether these names will pass muster by RBI. What do you have to say?
It needs to be seen in the context of the fact that this was a preferential allotment and there are very strict guidelines in terms of qualification of investors. First and foremost, if any fund had sold the YES Bank stock in the last six months, then that disqualifies them from participating in this. If you look at the domestic mutual funds, the one-year lock-in which comes with preferential allotment makes them ineligible.
We had to work with a more limited planned universe. Within that, two things were important -- size and partners who were in alignment with the strategy of the banks and who could remain long-term partners for us. The message that the market should really focus on is that we are raising $2 billion which is more than anything anybody on the Street had expected, rather than just focussing on the fact that we have gone ahead with a different genre of investors.
The curiosity centred around one single bid coming from the family office of Erwin Singh Braich for $1.2 billion. Have you done enough and more due diligence about this transaction or this offer?
Yes, obviously. First and foremost they came and spent a lot of time looking at the bank. We had multiple conversations with multiple stakeholders, local, Canadians, obviously the banking system, financial system checking with other business contacts and so far everything that we saw of the investors seem to pass muster. I would say that yes we have dug really deep, tried to satisfy ourselves in every respect and I also think that in all fairness, the investor should be given the chance to provide their position in the matter which I think they will do shortly.
The big question really is that do the investors have the wherewithal to be able to bring in investment of that size and my sense is that they will able to satisfy the market on that very shortly.
Why are you confident, why do you think this is a proper bid and this is a bid which in last minute cannot be withdrawn?
First and foremost this is a binding bid that they have provided and this came as you know….
There is a bank guarantee attached to it?
No, there is no bank guarantee attached to it. But they have gone to great a length to show us what their sources of funding are and what their resources are and whether they can meet this requirement or not. And on the basis of what we have been shown, we have every reason to believe that they have the resources to be able to make an investment of this size.
Have you informed the stock exchanges that you are looking at raising $2 billion and these are the bidders who have shown interest? There is one non-binding bid. What about the other bids?
On the contrary, this is a binding bid. When you do preferential allotment, it comes only on the back of binding bids. I do not think what we have received is really expressions of interest. These are bids to participate in the fund raise and to that extent, they are all pretty much on the same lines. So, it is not as if the other bids are just mere expressions of interest.
How will the voting right change in this case because $1.2 billion coming from an individual which means that the ownership and voting rights in the banks will not come in a proportionate manner?
For the sake of argument, let us say the stake works out to 25%. Clearly, the voting rights will be much lower than that. It is important to understand that there is no desire for control as far as this investor is concerned. They see private sector banks in India as a very strong investment thesis. They want to be long-term investors, but they want to be financial investors. Even if their voting rights were to be curtailed by the Reserve Bank of India, I do not think that is a point that would matter much.
So, they have already expressed that they are looking at capital investment without voting rights and this will not be last minute hurdle?
No, not at all. Even if you look at the binding term sheet, I do not think that they have asked for any specific management rights. Obviously, they have asked for board representation . If you are making an investment of that size, then board representation makes sense. But are they looking for any management rights or control functions as far as the board is concerned? I do not think so, at all.
What is the next step now? You will have to go to RBI to take their permission or is that permission already in the bag?
Obviously, the board had to first consider these term sheets. YES Bank has received interest from the family office of Citax Holdings Ltd. & Citax Investment Group for an investment of $500 million, and this will need RBI approval given the fact that they are above 5%. We now plan to take both these bids to the regulator for their approval.
"Are they (investors)looking for any management rights or control functions as far as the board is concerned? I do not think so, at all."
As per your release, the binding bid expiry date is 30th of December, which means you have approximately one month to get the RBI approval and then go ahead with the capital raise. What about year-end holidays? I thought Canadians and Americans go on year-end Christmas and new year holidays?
Actually the original validity of this bid was 30th November. Given the fact that no final decision was taken in yesterday’s board meeting with regard to this particular bid, they went ahead and extended the bid till 31st December. It is not a question of when the transaction occurs, I think for them the validity had reference only to the point when the decides to accept it or not accept it. Let us say that on the 10th when the board meets and decides to go ahead with this particular offer, then that will be deemed to be acceptance, in which case the 31st December date becomes irrelevant.
Is it slightly disappointing to see that your existing investors have not shown a big leap of faith in this round of fund raising?
Each of one of them was very interested, very supportive but like I said, if you look at it from the point of view of the preferential allotment, anybody who may have sold the stock in the last six months gets precluded from being part of this round of capital raise. It became a technical issue whereby many of them could not participate.
But you have just raised capital three months ago. Have new institutional come in? I do not see any of the other names of the new institutional investors.
Like I said, some of them would have issues with respect to the one- year lock in. Second, the way to interpret this capital gains is this: one, the $2 billion amount is significant, second, as per the Sebi pricing formula, these investors are coming in at a price which is above market. So, they are paying a premium to the market. And third is that they have a one year lock-in.
If you put these three factors together it makes it a very unique investment proposition. But most of all, it is a big validation in terms of the faith that these investors have in the bank.
You are calling it faith but some market men would say this is too big an amount not to be concerned about.
Two things; one the market should not be so quick to pass judgement on this. The mere fact that these are not globally known private equities should not in any way undermine their position. At the end of the day, these are family offices of a huge size. You have to give credit to the entrepreneur for having built up a business that led to the creation of this family office. They understand businesses, they understand investing and to that extent, the level of due diligence that came from them and the precision and incisiveness of the due diligence was of the highest order. So, I would say that we feel very happy about the quality of investors we have got on this one. We have others as well; some of India’s finest family offices, some of the other largest and best known institutional investors, It is a mixed big. My sense is that going forward, family offices will become the new norm in terms of large capital raising in this country.
It just may be true actually. Think about the huge amount of capital which is sloshing around in family offices. They need to find better avenues to park their capital when interest rates in the world is almost at zero.
From a global standpoint, family offices are big capital providers but people who are based say in the US, North America and all of that, have not been that active. My sense is that with this transaction and the visibility that we will get upon consummation, it will open up a whole new era of foreign family offices investing in worthy Indian businesses.
If I look at the SEBI formula, considering that there was a big drop in the stock at sub Rs 30, the average may not be above Rs 80-85 when the deal is done. You have raised capital above Rs 80 a couple of months ago. This new capital raising will happen below that. Will it happen below book value?
Yes, that is right.
For existing shareholders, if you are raising capital below book value, it is not a good idea.
So let us look at it from the lens of existing shareholders only. First and foremost, I think each of them will agree that one of the reasons why the bank is trading at a discount is because the market’s view is that it needs more capital. And the moment that capital comes, you will see the pickup in valuation as well. Second, if I looked at it purely from a bank which tends to be institutions of public trust, we see that we have a strong responsibility to the shareholders and other stakeholders as mostly to the depositors.
If you look at it from the standpoint of more capital coming in, it is great news for the bank and that should change the narrative around YES Bank. You will see it starting to trade at a multiple like a private bank.
If $2 billion comes in, what happens to your growth, what happens to your credit cycle, what happens to your lending?
We have hit the bottom in terms of our economic macros and from here, we can clearly see that there will be a pickup. The government will be very proactive in terms of policy initiatives. We have a very enlightened and a very supportive regulator.
Between the two of them, they will turn the economy around very quickly. At the end of the day, if you look at global economies where there is a supply side constraint, it can be addressed but where there is a demand issue, that cannot be addressed. India does not have an issue with regard to demand. It is a question of rebuilding confidence and the moment that confidence gets rebuilt, and you will start seeing some growth in the economic parameters.
The investment cycle will come right back and that will create a lot of opportunities for a corporate bank like YES Bank. If you see the dislocation that has happened in the whole NBFC space and the fact that there is little introspection as far as the public sector banks are concerned, the playing arena for us has expanded dramatically. With the capital that is coming, we could grow at a very robust pace.
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2 Comments on this Story
Goswami Boy254 days ago
Can't Modi 'nudge' with ED action if he does not honour govt commitments?
Nikhil Kapadia256 days ago
Blabbermouth Gill never ceases to surprise. Each time he opens his mouth the yes bank stock falls. Today again it is down 6 pct.
There is no way RBI will permit investors with doubtful credentials to come into yes bank.further no cute investment structures will bepermitted. Existing investors have list almost 30 to 40 pct from the last qipissue.
Watch yes become worth investing at a price of Rs 25