Time and again Minority investors get sucked into companies that grow with an eye on valuations. Such companies show market outperforming quarter on quarter growth, hold bullish analyst calls, please fund managers and valuations rise. Then things start to go wrong and even as majority shareholders exit, the value erodes leaving minority shareholders to nurse deep losses.
This story never ends.
The story of what happened in the case of YES bank is again one of those cases where minority shareholders have lost considerable wealth. The market capitalization of YES bank has tumbled by 82% from the peaks (Rs. 953 billion) witnessed in August 2018. The original promoters of Yes Bank have completely cashed out of the bank, after showing aggressive growth for valuations that ended up with the bank virtually crippled.
The same valuation game is likely to be played again. The bank is now aggressively looking for a 360-degree turn in its business operations and profitability with a new round of fundraising plan. This old aggressive approach of the bank towards business operations with a view to make money for the new investors, rather than having a stable & steady growth path for years to come could again erode minority shareholders’ wealth going ahead. The potential investors who have signed up for a new round of fundraising plan would likely to exit/off-load the stake in the bank once they’ve made significant profits. This would add additional pressure on the current management to hunt for higher growth and might end up with a weakening profile. Minority investors would again be with nothing.
YES bank on Friday announced a fundraising plan of USD 2 billion through a preferential allotment, subject to approved by regulators. Of the potential USD 2 billion investment, USD 1.8 billion is coming in from family offices, majorly coming from SPG Holding & Citax Holding and rest USD 200 million from Institutional Investors. As per the media reports, one of the potential investors (who’s funding 60% of USD 2 billion) had gone through bankruptcy proceedings roughly 20 years ago. The biggest hurdle for this deal is approval from the Reserve Bank of India. In the past, the central bank has stayed away from giving a go-ahead to investors without having a publicly known track record.
An aggressive lending approach adopted by YES bank has led to a sudden spike in NPAs and deterioration of the quality of the loan book of the bank. Over the past couple of quarters, speculation over the liquidity issue of the bank has caused panic for both depositors and investors, the bank has reported a 7% decline in deposits on (Q-o-Q) basis and gross advances aggregated to about Rs 2.32 trillion as of 30th September 2019.
On the promoter shareholding tailspin, promoters shareholding has fallen from 75% during the time of IPO in 2005 to almost 0% in 2019. Rana Kapoor and his privately held company Morgan Credits Pvt Ltd had pledged shares in 2018 when the market capitalization of YES Bank was at peaks of Rs. 953 billion. However, when the stock price tumbled from peaks the lenders have started to slowly offload the pledge shares. Recently Reliance Nippon Life Asset Management had invoked pledge shares of Rana Kapoor against non-convertible debentures had pulled down the percentage of Rana Kapoor’s shareholding almost to 0%. This is the third such sale of the bank’s promoter stake after pledged shares were invoked. During Sept 19, Rana Kapoor’s privately held Morgan Credits Pvt Ltd. sold 2.3% and then a week later, Yes Capital (India) Pvt Ltd. offloaded 1.82%.
