INSUBCONTINENT EXCLUSIVE:
By Suvashree GhoshIndia’s unprecedented bailout of YES Bank comes with an unusual rider: investors who hold more than 100 shares cannot
sell 75% of their holding for at least three years.
The caveat means anyone who has more than Rs 2,555 ($35) invested in the lender -- an
amount based on Friday’s price and one so small that it covers roughly the cost of a quarterly rail pass in Mumbai -- has limited trading
Investors including Desjardins Global Asset Management and local funds such as ICICI Prudential Asset Management Co
and Aditya Birla Sun Life Asset Management Co
are among those possibly impacted, according to disclosures from earlier this year, compiled by Bloomberg.
“This kind of lock in reminds
me of the song Hotel California, where you can enter but can’t exit,” said Gaurang Shah, vice president at Geojit Financial Services
“With such forced orders, no one will now want to buy YES Bank shares.”
The perceived penalty on equity holders may temper optimism
about a revival in India’s fourth-largest private bank, which authorities seized last week to effect the nation’s biggest bank rescue
The reason for policy makers’ urgency became clear late on Saturday, when YES Bank finally announced its much-delayed results: core equity
capital plunged far below the regulatory minimum as its bad-loan ratio surged.
YES Bank results highlights:CET1 ratio 0.6% end-December
versus regulatory minimum 7.375%Gross bad-loan ratio 18.9% in December versus 7.4% SeptemberSlipped to a loss of Rs 18,560 crore for
October-December from a Rs 1,000 crore net profit a year earlier; had reported a Rs 630 crore loss for April-SeptemberWhile speculation of a
bailout had been swirling for months, the dramatic move to seize YES Bank unnerved markets, particularly a proposal to write down YES
Bank’s additional tier 1 bonds -- hybrid securities, which can be written off if certain triggers are breached.
The bank believes AT1
bonds amounting to some Rs 8,700 crore “can be utilised to enhance the common equity,” YES Bank said in a statement Saturday
With capital infusion by new investors “and consideration of the AT1 bonds, the concerns around the liquidity and capital adequacy will be
mitigated and the bank’s ability to grow its business will substantially improve,” it said.
YES Bank rescuers:State Bank of India will
invest Rs 7,250 crore; stake capped at 49%ICICI Bank Rs 1,000 crore; about 5%HDFC Rs 1,000 crore; about 5%Axis Bank Rs 600 croreKotak
Mahindra Bank Rs 500 croreBandhan Bank Rs 3 croreFederal Bank Rs 3 croreYES Bank shares rose 2% in Mumbai on Friday to Rs 25.55 a share,
paring its decline this year to about 46%
The price is higher than the Rs 10 State Bank will pay for each YES Bank share.
State Bank will have to hold at least 26% of YES Bank for
The rules were officially notified late on March 13 and curbs imposed on YES Bank -- including a limit on withdrawals and servicing of
liabilities -- will be lifted within three working days.
While Finance Minister Nirmala Sitharaman flagged the lock in on Friday, investors
had presumed it would only apply to institutions rescuing YES Bank and were dismayed when the written notification indicated existing
shareholders were subject to the rule, too
YES Bank issued a statement advising investors holding more than 100 shares to “exercise utmost caution” while trading.
“I would like
to think this is a goof-up in drafting the scheme, which they will correct once the full impact is understood,” Deven Choksey, managing
director at KR Choksey Securities, told BloombergQuint.