Yes Bank FPO: Anchor demand indicates Rs 15,000 crore a tall ask for lender

LIC, SBI asked to chip in to meet demand shortfall, says sources

Allotment made to ‘anchor investors’ ahead of an initial or follow-on public offering (IPO or FPO) is to demonstrate strong demand for shares among institutional investors. However, the underlying message from Yes Bank’s anchor allotment is that raising Rs 15,000 crore could be a tall ask.

For one, the shares had to be allotted at the lower end of the price band of Rs 12 to Rs 13 per share. Despite that, the amount available under the anchor category remained undersubscribed. Also, domestic mutual funds (MFs)—which tend to corner large portion of shares in the anchor book—have conspicuously stayed away.

Sources say the bank has sounded of state-owned insurance giant Life Insurance Corporation (LIC) and State Bank of India (SBI)—currently the largest shareholder of the bank—to keep powder dry to make up for any possible shortfall in demand during the FPO.

Yes Bank on Tuesday allotted Rs 4,100 crore shares to a dozen institutional investors in the anchor category. Yes Bank’s FPO size if Rs 15,000 crore. Half this is meant for so-called qualified institutional buyers (QIBs) and 60 per cent of QIB portion can be allotted to anchor investors. As a result, up to Rs 4,500 crore worth of shares were available under the anchor book. Also, a third of the anchor book---Rs 1,500 crore—is reserved for domestic MFs. However, barely any MF bid for shares in the anchor category.

If not for Tilden Park, the anchor demand would have been even more underwhelming. The US-based asset manager applied for shares worth Rs 2,250 crore—half of the total available shares under the anchor book.

Sources say due to the poor demand, Yes Bank’s capital raising committee (CRC) had to allot shares at Rs 12 per share instead of earlier projection of Rs 13 per share.

 

Industry observers say that this is a rare instance were shares are issued at the lower-end to anchor investors.

“The message from the anchor allotment isn’t positive. Yes Bank may struggle to garner full subscription is retail investors don’t participate,” said an investment banker asking not to be quoted.

About Rs 5,000 crore worth of shares are reserved for anchor investors. SBI has board approval to invest Rs 1,750 crore in the FPO. Sources say LIC also may invest between Rs 1,000 and Rs 1,500 crore depending on how the demand pans out. An FPO has to garner at least 90 per cent subscription to sail through.

Shares of Yes Bank ended at Rs 20.5 on Wednesday. Market players say if the secondary market price holds, retail and wealthy investors may be tempted to apply with an aim to make listing gains. The FPO, garnered 24 per cent subscription thanks to bids by domestic institutional investors.

However, the analyst community isn’t bullish on the stock. Last week, Macquarie issued a note on Yes Bank with a price target of Rs 8 per share and an ‘underperform’ rating. The brokerage believes raising Rs 15,000 crore wouldn’t be sufficient.

“We believe that the capital YES Bank is planning to raise could largely go to meeting regulatory requirements and making provisions for NPA,”said Suresh Ganapathy, analyst, Macquarie. “Thus, we estimate the total requirement without even considering growth capital requirements is around  Rs 23,000 crore. The bank also has not been making much of an operating profit for the past two quarters.”

Angel Broking on Tuesday in a FPO note issued a ‘neutral’ rating to the issue.

“At the upper end of the price band, Yes Bank demands price-to-book (on adjusted basis) of 0.85 times post considering FPO. In current market, other banks are trading at attractive valuation of FY20 net worth, including IDFC Bank (0.9x), SBI Bank (0.5x core banking business), Federal Bank (0.9x),”it said.