Yes Bank is coming up with a follow on public offer (FPO) of an issue size of ₹15000 crore out of which ₹200 Crore is reserved for eligible employees. The equity shares offered for fresh issue would have face value of ₹2 each and come with a price band of ₹12-₹13.
As of March 31, 2020, the Bank’s CET (Common Equity Tier) 1 ratio was at 6.3%. The RBI had prescribed a minimum CET 1 ratio of 7.375% by March 31, 2020. This minimum CET 1 ratio requirement will increase to 8% by September 30, 2020. In order to comply with the requirements of the RBI with respect to CET 1 ratio and support the Bank’s growth plans, it is important to have adequate equity capital. Hence, to boost capital as per the regulatory norms, Yes bank is launching FPO. Further, FPO route offers freedom in pricing the issue unlike the QIP (Qualified Institutional placement) route.
The price band for the FPO is fixed at ₹12-₹13 which is half than its current market price of ₹25.6 (closing price on NSE, Friday).The lower pricing implies a 50% dilution for the existing shareholders assuming that they don’t buy additional equity in the upcoming FPO. The FPO is priced at a discount to woo the new investors and making capital raising easier for the issuer. FPO would also lower the burden of existing shareholders to infuse additional capital in the troubled private sector bank.
SBI would invest ₹1760 Crore(11.73% of total FPO size) in FPO of Yes bank.
It is worth to note here that there is a lock in period of 3 years from the commencement of revival scheme to the extent of 75% of an investor’s stake in the bank.
Since the implementation of the Reconstruction Scheme, they have formulated new strategic objectives which aim at augmenting deposit base and liquidity buffers, optimizing operating costs, building stronger governance and underwriting framework and focusing on stressed assets resolution over the next 6 to 12 months.
|Title||FY 2020||FY 2019||FY 2018|
|of which Interest earned||26052.1||29623.7||20268.5|
|of which other income||11956.0||4675.4||5293.1|
|Provisions and contingencies||28312.4||6417.3||3525.5|
|Net profit margin||-63.1%||5.8%||20.9%|
|Reserves and Surplus||19184.8||26424.4||25291.9|
|Cash and bal with RBI||5943.6||10797.7||11425.7|
|Bal with other banks||2486.7||16187.1||13328.0|
|Return on net worth||-81.9%||6.4%||17.7%|
The proposed FPO would result in dilution of shares of existing shareholders and the new retail investors should be aware that FPO is largely aimed at fulfilling the capital need arising due to the regulatory norms. The discounted price offer is a blow to the existing investors of Yes bank and the lower price may indicate the real price of Yes bank; the market has not taken the move positively as stock prices have tumbled after the FPO price declaration.
Further, already bad and risky assets would further be impacted due to COVID and overall economic stagnancy. Additionally weaker net profit margins, reducing deposits, and interest income point towards deteriorating fundamentals. Hence only those investors who have high-risk appetite may invest else one should refrain from subscribing.
Review By CA Priyanka Choudhary on 13th Jul 2020
About CA Priyanka Choudhary
Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.
Email: [email protected]
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.
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