Yes Bank’s Fund-Raising Plan May Run Into SEBI Pricing Hurdle

Yes Bank Ltd. put off its third-quarter earnings as the beleaguered private lender is evaluating interest from investors to raise funds. But its plan to sell stake could run into the market regulator’s pricing hurdle.

QIP

If a preferential allotment is not viable, Yes Bank can consider a qualified institutional placement.

In August, Yes Bank raised Rs 1,930 crore at Rs 83.55 apiece through this route. But regulations don’t allow successive QIPs within six months. For Yes Bank, the six-month period ends by Feb. 15.

The price of shares issued in a QIP can’t be less than the average weekly high and low closing prices in the two weeks preceding the relevant date. For a QIP, the relevant date is the day the board meets to approve the share sale. The norms allow a 5 percent discount.

Yes Bank’s average stock price in the last two weeks was about Rs 37 apiece, nearly equivalent to its prevailing market price. So a QIP appears to be a better option, at least for investors.

But there is a catch. Only foreign portfolio investors can participate in a QIP. Other overseas buyers can invest only via a preferential issue as it’s considered a foreign direct investment.

Yes Bank, according to its filings, received non-binding expressions of interest from JC Flowers & Co. LLC, Tilden Park Capital Management LP, OHA (U.K.) LLP (part of Oak Hill Advisors) and Silver Point Capital. Most of these funds invest through structured products in companies with stressed balance sheets to preserve capital and generate risk-adjusted returns.

According to Bhagat, these investors can participate in a QIP, but through participatory notes. That won’t give them direct access to the company or the management, and they would have to rely on an intermediary, he said.

Not just that. There’s also a risk of Yes Bank’s shares falling below the floor price of the QIP.

One of the immediate triggers for the lender’s shares would be its earnings for the quarter ended December. If the results are better-than-expected, the stock could rise. But if they don’t meet expectations, shares may face selling pressure.

If the company does its QIP before the earnings and the results miss estimates, investors would face mark-to-market losses. That’s what happened after Yes Bank’s August QIP.