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SBI taps local investors for YES Bank revival plan

Lender aims to bring in Rs 20,000 crore equity and bulk deposits, CDs of Rs 30,000 crore, moots bond conversion.

, ET Bureau|
Last Updated: Mar 12, 2020, 08.33 AM IST
YES Bank
SBI would like to arrange equity capital of Rs 20,000 crore and Rs 30,000 crore of bulk deposit and certificate of deposits (CDs) to build a buffer to stabilise the bank
Mumbai: State Bank of India (SBI) is striving to rope in local financial services groups like ICICI, HDFC, Kotak and Axis along with a few private investors as part of a strategy to infuse capital and revive Yes Bank. SBI is simultaneously examining a deal with bondholders for conversion of Yes Bank’s additional Tier 1 (AT 1) securities into shares of the private bank.

SBI would like to arrange equity capital of Rs 20,000 crore and Rs 30,000 crore of bulk deposit and certificate of deposits (CDs) to build a buffer to stabilise the bank in case of withdrawals and fund transfers once the moratorium is lifted. The AT1 bond swap proposal involves converting around Rs 8,500 crore bonds into Rs 1,700 shares.

While the domestic financial institutions are open to participating in the equity infusion plan, they are yet to give their commitment. “They will probably decide after Saturday when Yes Bank comes out with the Q4 results. They will get a picture of the quantum of loan write-off, fall in capital adequacy and erosion of existing equity,” a person familiar with the negotiations told ET.

‘Short Time Frame’

A few family offices like PremjiInvest and leading stock market investors Rakesh Jhunjhunwala and Radhakishan Damani have also been sounded out by SBI for the proposed recapitalisation of Yes. Messages to Jhunjhunwala, and PremjiInvest chief investment officer TK Kurien did not generate a response till press time. Damani could not be contacted.

“SBI will not want its stake in Yes Bank to go beyond 49% even though it has to bridge the gap between the required equity and what is eventually raised,” said another person.

SBI had met an array of private equity funds and overseas investors like Blackstone, Carlyle, Brookfield, Goldman Sachs and Tilden Park among others to offer equity in Yes Bank. However, most of them are not in a position to bring in funds at a short notice.

Several of these investors were also not comfortable relying on the lack of diligence that they are being allowed to conduct, higher entry price and a piecemeal approach funding solution offered. “Earlier the deadline was March 23, then over the weekend it became clear that SBI wanted the money by this week — as early as Thursday,” said one of the investors involved. “That is too short a time frame. It takes a minimum of 72 hours to bring money onshore.” By Wednesday noon, a few global investors had informed SBI their inability to participate in this round.

It is widely perceived that till the bank is adequately capitalised, fresh CD funds are mobilised, and existing bulk depositors derive a comfort, lifting the moratorium could be risky. Yes Bank was placed under moratorium by Reserve Bank of India (RBI) at 6 pm on March 5. On the evening of March 6, RBI announced a draft reconstruction scheme — asking depositors and creditors to share their views on the plan by March 9.

Axis Trustee, representing bondholders, has received the consent of more than 75% of AT1 bondholders to the proposed conversion of bonds into equity. “We are awaiting the response of RBI and Yes Bank administrator. I am not in a position to comment further,” said Sanjay Sinha, MD of Axis Trustee.

If the conversion terms are accepted by RBI and SBI, majority of the AT1 bondholders have confirmed to Axis that they will not pursue legal action which was initiated this week. On Monday, Axis Trustee had filed a writ petition before the Bombay High Court to restrain RBI and SBI from carrying out the ‘Yes Bank reconstruction plan’ before the views of bondholders are properly heard. Bondholders are objecting to the proposal to completely write down AT1 bonds without any reduction in equity.

Stating the details of a settlement plan and conversion proposal in a letter to the banking regulator on Wednesday, Axis Trustee said that the bondholders have also requested that the lock-in features, if any, should be restricted up to 36 months in line with the proposed new equity issuance by Yes Bank.

Yes Bank shares (having face value of Rs 2) traded at Rs 28 on Wednesday.

“The conversion proposal was discussed by the government on Wednesday. In its fiduciary capacity, Axis was continuously in touch with investors over the past few days,” said a senior official with a large financial institution.

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