YES bank issues FPO to raise Rs 15,000 crore
To raise its capital levels, Yes Bank is launching its Follow-on Public Offer (FPO) to raise Rs 15,000 crore from the market. The price band for the FPO has been fixed at Rs 12 to Rs 13 per share bid in multiple of 1,000 shares. The country’s 6th largest private sector bank has been in trouble. The Government approved a rescue plan for Yes Bank backed by SBI in March.
Why do YES bank issue FPO
An increase in nonperforming assets and consequent provisioning has led to Yes Bank breaching the capital adequacy requirements as mandated by the Reserve Bank of India. At March-end 2020, the bank has Tier 1 capital of 6.5%, which is much below the RBI requirements of 8.875 percent. Capital adequacy ratio (CAR) of 10.5% should be maintained by the bank according to RBI guidelines. But yes banks have CAR of 8.5%. All these necessitate the fundraising plan.
The bank has about 215,000 cr. of loans, and a Tier 1 capital base of around Rs. 15,000 cr. Additional 15,000 cr. effectively doubles its capital to Rs. 30,000 cr. With the infusion of Rs 15,000 Crs, The CET 1 ratio changes to 12.75% and CAR to 14.75%.
How Much Is The Dilution?
Roughly 1,255 Cr shares were issued at the end of March 2020. The FPS is currently for Rs 15,000 Cr at Rs 12 each. The FPO will add another 1,250 Cr shares. In total the dilution is roughly 50%.
For instance, SBI owns roughly 605 Cr shares in Yes Bank. SBI approved an additional infusion of ₹1,760 crores in the bank a few days ago. Housing Development Finance Corp, ICICI Bank, Kotak Mahindra Bank, Bandhan Bank, Federal Bank, and IDFC are other companies that have invested in Yes Bank.
Will FPO add Liquidity?
The free-floating shares of Yes bank which is available to open market are only 25% (300 Cr.). The total volume of shares available to the market is relatively small. The tradeable shares of Yes Bank Will increase over 4x (shares worth 1250 cr) after the FPO.
Currently Yes Bank Shares are trading at Rs 19. What if the banks sell their unlocked shares at Rs 19 and then buy back the same in FPO for Rs 12? This will give them Rs 7 profit on each share keeping their holding intact. That’s about Rs. 2,200 cr. in profits that banks could get by just doing this round trip. This has already been reflected in the share price as most of the volumes have spiked up and the share price is moving downwards.
