YES Bank in talks with mutual funds for raising up to $500 million

has approached domestic asset management companies (mutual funds) for raising fresh equity capital worth $300-$500 million. This comes amid a slew of rating downgrades and stress on its loan book.

If the private bank is able to raise funds in this round, it would get some breathing space. The lender, however, will still have to work to raise more funds to address concerns. The bank has been aiming to raise a total of $2 billion.

The private lender has been struggling to raise capital for months. It also had to postpone its December 2019 quarter results as the fundraising process consumed most of its top management’s time.

Investment bankers associated with the fundraising exercise said the bank has approached domestic mutual funds for issuing equity shares.

“While there is definite interest in the offering, firm commitments have not been made yet. The bank is in dialogue with mutual funds which had participated in the last equity raising round in 2019,” said one of the bankers.

In August 2019, had raised Rs 1,930 crore through the qualified institution placement (QIP) route.

Fund managers have conveyed reservations over putting money into instruments which have a lock-in period. However, discussions are on to find a solution. An email sent to the bank to know the status of its fundraising plans did not get response till the time of going to press.

There is also a plan to issue equity shares on a rights basis. For participating in a rights issue, an investor must be a shareholder, which is why some existing shareholders (mutual funds) are being approached, the banker said. The final investor approvals are expected over the next three days. These investors may exit once a deal to sell a controlling stake in the bank is struck.

On February 12, had delayed announcement of its December quarter results as it was in talks with potential investors, including J C Flowers, for raising equity capital. It received non-binding expressions of interest from several investors, including J C Flowers and Tilden Park Capital Management.

Last month, ICRA downgraded the bank’s tier-I and tier-II bonds from “A-” to “BBB+” due to continued delay in capital raising by the lender.

This apart, there was likelihood of further increase in the quantum of stressed and reported non-performing exposure, given the limited resolutions and recoveries.

Accordingly, the quantum of capital requirement is also expected to increase from earlier estimates, ICRA had said.

The bank’s common equity tier-I (CET-I) stood at 8.7 per cent of the risk weighted assets (RWAs) as on September 30, 2019. Although this was above the Reserve Bank of India’s threshold of 7.375 per cent as on March 31, 2019, and 8.0 per cent for March 31, 2020, it remains weak.

On Tuesday, YES Bank’s stock closed 1.1 per cent lower at Rs 31.25 per share on the BSE. The stock is down over 33 per cent since the start of calendar year 2020.

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