Private sector lender YES Bank is all set to launch fresh equity shares in the market via follow-on public offer (FPO) worth Rs 15,000 crore tomorrow. The issue will close on July 17. The price band of the issue is fixed at Rs 12-13 per equity share, a discount of about 50 percent to its July 10 closing price.
Rationale Behind FPO
The lender has specified clearly that the proceeds from the issue will be used in ensuring adequate capital to support growth and expansion, including enhancing its capital adequacy and solvency ratio.
The bank's CET (common equity tier) I ratio stood at 6.3 percent, as on March 31, 2020. The central bank had directed the bank to keep it at a minimum of 7.375 percent during the same period. In its prospectus, the bank said, "The minimum CET I ratio requirement will increase to 8 percent by September 30, 2020."
The fresh issue of equity shares will infuse liquidity in the bank, and also help with the loan book as its asset quality remains poor. During FY19-20, the bank reported a net loss of Rs 16,432.58 crore led by higher provisions that rose over four-fold to Rs 28,312.49 crore in that year.
Why are Investors Unenthusiastic About FPO?
After been placed under RBI moratorium on March 6, 2020, couple of big banks came to the rescue of the private lender including State Bank of India, HDFC, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Federal Bank, Bandhan Bank and IDFC First Bank. All of them invested a total of Rs 10,000 crore in YES Bank via government-approved reconstruction scheme, in March this year.
In fact, SBI had earlier agreed to invest Rs 1,760 crore in the FPO investment. Currently, it holds about 49 percent stake in the YES Bank, and cannot reduce its stake below 26 percent in the next three years, as per the reconstruction scheme.
Market expert Sudip Bandhopadhyay of IndiTrade Capital stated that there will be a gap between existing shareholders and future shareholders given SBI's shareholding will come down.
"There are two primary reasons for the disinterest amidst investors'. First, there is a doubt regarding the bank's books and its valuations. Second, investors have better options to invest in quality banks with attractive valuations and book," said Bandhopadhyay further.
According to some traders, the risk-reward ratio seems unfavourable. Also, the three-month moratorium remains a concerning factor for the Street as it will build pressure on their loan book. However, Samco Securities recommend 'subscribe' on the FPO.
It feels that the backing of SBI is worth taking the risk. It further added, "Investors with high risk appetite and comfortable liquidity position with ability to hold for minimum 2-3 years can invest in this high-risk high-reward issue."
The stock fell as much as 8 percent to Rs 20.30 per share on the NSE. At close, the shares ended nearly 5 percent lower to Rs 21. In the last four trading sessions, it has slumped 24 percent to the current levels, while in the last 6 months, the shares have corrected by over 50 percent.