 "Rana Kapoor")
Companies not being able to raise money during their initial public offerings have been known to occur in the market, but very rarely has one heard of a qualified institutional placement (QIP) failing. YES Bank has the unfortunate distinction of deferring its proposed institutional private placement of $1 billion after keeping it open for a day.
It is because of the nature of the QIP placement that the deferring has baffled the market. QIPs are offered to QIBs (qualified institutional buyers), simply known as institutional investors. Unlike the retail investor this set of investors is considered as well informed with the knowledge of evaluating every company on its merit.
A merchant or investment banker is the link between a company and the investors. The merchant banker or bankers, as the case may be, generally gets a pulse of the market through their interaction in the market and knowledge of the market as to the appetite for the issue and the pricing for it.
The issue is normally opened when these bankers have at least some sort of verbal commitment, if not a signed term sheet, from the fund managers. Only if the interest is ‘visible’ is the issue formally opened.
In the case of YES Bank a total of 11 merchant bankers were advising the company and helping it find investors in its $1 billion issue. YES Bank on its part has partly blamed extreme market volatility and poor advice on regulation by investment banks Goldman Sachs, Motilal Oswal and CLSA.
The regulation, which the bank has been complaining about, is of keeping the issue open for three days despite the issue getting subscribed on the first day itself. CEO Rana Kapoor had informed media that the issue had secured a very good response at 4.00 am on Thursday morning. According to Kapoor the issue should have been closed ones it was subscribed.
Keeping the book open for three days scared the investor in an ‘extreme volatile’ situation was the management’s interpretation. But the rules of the game are same for all the companies. In fact Motherson Sumi closed a QIP a day on Friday playing by the same rules.
Analysts have been quoted as saying that the fall in stock price could have resulted in the deferment. YES Bank’s share price has moved from Rs 725 at the beginning of January 2016 to touch a high of over Rs 1,400 just ahead of the issue. The issue was priced 3% below the ruling market price. Kapoor has pointed out that the issue price met with SEBI’s stipulated guidelines.
But ones the share price went below the issue price, subscribing to the issue would have been a tough call. For a fund manager it would have been difficult for the fund manager to justify investing in a QIP at a higher price when he could have bought shares in the market at a lower price.
However, for YES Bank it’s not the end of the world. They can try to raise money again ones volatility has come down. As per Kapoor the bank is well capitalised with over 15% Tier 1 capital and can maintain a good growth rate even if the issue is delayed. The only problem will be that if YES Bank’s price falls, the potential investor would have their fill from the secondary market. It’s in the bank's interest to get over with the QIP as soon as possible.
