Yes Bank Ltd. raising $1.1 billion from Carlyle Group and Advent International is set to be a re-rating event for the lender, according to Managing Director and Chief Executive Officer, Prashant Kumar.
In an interview to BQ Prime, Kumar said that the fund-raise will not be dilutive for existing investors.
“Firstly, the investment is coming at a value which is slightly higher than the book value. Secondly, this is also a re-rating event for the bank,” Kumar said. “Not only would this open opportunities for business growth, but also reduce funding cost. The return on equity would get a boost from this capital,” he said.
Analysts pointed out on Monday that while return on equity will improve, it is likely to happen only after two years.
“While RoAs are expected to improve over the next few years, we believe it is unlikely to cross double digits in the next three years on a full year basis,” analysts at Macquarie Research said in a report. “This means a double-digit RoE could happen only beyond FY25 and that is too far looking into the future,” the report said.
On Friday, Yes Bank informed exchanges that it will raise Rs 8,898.47 crore from Carlyle Group and Advent International, through issuance of 369 crore equity shares at Rs 13.78 per share and 256 crore warrants at Rs 14.82 per warrant. Each investor will acquire 10% stake in the bank, after the warrants are converted, the bank had said.
“Their (Carlyle and Advent) nominees coming on our board will help the bank in moving in a new direction, which is more growth-oriented and profit-oriented,” Kumar said.
The equity infusion is set to raise the common equity Tier-1 capital ratio to 15.7% from 11.9% currently, he said. This will meet the bank’s medium to long-term capital needs and provide a three year runway.
“After that the return on assets should add to the capital base and make us self-sufficient,” Kumar said.
Through this fund-raising exercise, large private equity players will enter the bank’s current capital structure which only includes financial institutions and retail investors. This will improve the quality of the investors, Kumar said.
With capital no longer a constraint, Yes Bank will push up is credit growth across segments, he added.