Highlights:
1. The two companies may invest around $350 million each in the lender
2. The private bank has exposures to many debt-laden firms, including Dewan Housing Finance Corporation and Jet Airways
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TPG Capital’s Indian private equity arm and buyout firm Advent International Corporation are among institutional investors that will infuse fresh capital into Yes Bank, according to two people directly aware of the ongoing discussions.
The amounts to be invested are currently being negotiated, the people said on condition of anonymity.
“TPG and Advent International are the front runners. They will most likely invest around $350 million each," said one of the two people.
Yes Bank’s Chief Executive Ravneet Gill needs to urgently raise funds to shore up the lender’s capital buffers and strengthen its ability absorb losses even as the private lender’s stock has tumbled 80 percent since August 20 amid rising bad debts and an unexpected loss.
Yes Bank has met at least 76 firms, including PE funds, high net-worth individuals and investment managers over the past two months to seek more funds.
Emails sent to Yes Bank, TPG Capital and Advent International remained unanswered.
The bank will issue new shares through the preferential allotment route to TPG and Advent International to raise the money, said the first person.
A capital infusion has become indispensable for Yes Bank to stay afloat. “The bank’s weak performance in fiscal 2019 led to its capital, as measured by the common equity tier 1 ratio, falling to 8.4 percent from 9.7 percent in FY18," said US-based rating agency Moody’s Investors Service.
“Raising capital in Q2 (July-September quarter) is a definite thing," said the first of the two people cited earlier. “There are several options in front of the bank, which includes preferential allotment, qualified institutional placement, rights issue, etc. But to begin with, Yes Bank will do a preferential allotment of shares. This will enable more varieties of institutional investors to participate as compared to QIP. In fact, through a preferential allotment, the bank may be able to raise the entire $1 billion required at one go."
Gill announced on July 17 that the bank would raise $1.2 billion and is in discussions with several private equity players.
“For the moment, there is a firm investment commitment from TPG Capital and Advent International for around $600-700 million," said the second person, adding that the deal is likely to be closed within the next three weeks.
Yes Bank needs capital to improve its loan book quality that has been worsening with an increasing number of corporate accounts turning into non-performing assets.
The bank has exposures to many debt-laden companies currently in the news; this includes Rs 3,700 crore to DHFL and Rs 550 crore in Jet Airways (India) as of March.
In April, the private lender classified about Rs 10,000 crore of its exposures, representing 4.1 percent of its total loans, under the watch list, which could translate into non-performing assets over the next 12 months.
If Yes Bank cannot raise the capital, its loss-absorbing capacity and, therefore, financial profile will be under pressure, said Moody’s Investors Service.
At the end of March 31, Yes Bank’s exposure to Indian housing finance companies (HFCs) and non-banking finance companies (NBFCs) represented 6.4 percent of its total exposure.
“In addition, Yes Bank had a 7 percent direct exposure to the commercial and residential real estate sector as of the same date, which is also under pressure, because liquidity conditions have worsened for the real estate sector, just like with the HFCs and NBFCs," said Moody’s.
As of March 31, Yes Bank reported total assets of Rs 3.8 trillion.
