Capital hunt! Yes Bank weighs Citax; no call on Braich yet

Beleaguered private lender Yes Bank is “willing to favourably consider” the $500-million offer from Citax Holdings even as the $1.2-billion offer from Erwin Singh Braich and SPGP Holdings remains under discussion, the bank said in a release to exchanges after a board meeting on Tuesday.

Yes Bank shares fell the most in two months to close the session at Rs 50.55 on the BSE, down 10.05%. The stock has given up 72.2% of its value so far in 2019 against the Sensex’s gain of 11.6%.

Yes Bank’s search for capital has been getting more arduous as its disclosure of names of prospective investors ended up raising more questions than answers.

Analysts and market watchers have roundly panned the lender’s choice of the relatively-obscure Canadian citizen Erwin Singh Braich, backed by Hong Kong-based fund SPGP.

The latter is known for having backed out of the bidding process for Reid & Taylor under the corporate insolvency resolution process (CIRP). The two parties together had offered to invest $1.2 billion – over half of Yes Bank’s planned fund-raise of $2 billion.

Of the rest, $500 million was to be brought in by Citax Holdings, whose name had also popped up in the course of the insolvency process for Nagarjuna Oil. Citax, too, failed to furnish a bank guarantee of Rs 100 crore for the bid amount, a recent report by Jefferies said.

Even as the three prospective investors have gone on record to clarify their source of funds for making the investment in Yes Bank, analysts say there is only a slim chance of them clearing the Reserve Bank of India’s (RBI) fit-and-proper criteria. In its report, Jefferies said that at current dilution, both the family offices will be subject to these criteria as they will own more than 5% in a private-sector bank. “And that’s being seen as a big hurdle. If Yes doesn’t get the requisite RBI clearance for these two investors, and given that there’s no big name in that list of investors, it may face a tough time maintaining regulatory capital ratios going forward,” analysts at Jefferies wrote.

Some investors have cast aspersions on the ability of the bank’s board to take a call on the quality of investors. “We also have serious reservations regarding the quality of board of directors who are willing to consider these kinds of investors to be large shareholders, who don’t have the requisite experience,” Macquarie Capital Securities (India) said last week.

Yes Bank’s troubles began around a year ago when the RBI refused to grant the lender’s then chief Rana Kapoor a fresh term at its helm. In February this year, Ravneet Gill took charge as Yes Bank’s managing director and chief executive.

Thereafter, the bad news on asset quality has turned worse with every passing quarter. In November, Yes Bank said that RBI had found it to have under-reported bad loans by Rs 3,277 crore in FY19. A pileup in bad loans has meant an ever-rising provisioning burden which, in turn, has hit the bank’s capital ratios.

Macquarie estimates that Yes Bank’s capital requirement could range anywhere between $3-3.5 billion over the next 18 months, if incipient stress is accounted for.