Yes Bank ~ Has the RBI & MOF lost it !?

Yes Bank ~ Has the RBI & MOF lost it !? SEBI really is a bystander here

Controversial Lock In Clause 3 Sub Clause 8 (a) in the Scheme of Reconstruction 

No wonder the Finance Minister Mrs Nirmala Sitharaman, while highlighting only selected points, even when asked for details of the Scheme,did not want to say it at Friday,March 13,2020 evening press meet to announce cabinet decisions,one of which was the approval of RBI’s Scheme of Reconstruction for Yes Bank and that a notification would follow. A gazetted notification did follow  late same evening by the Department of Financial Services,Ministry of Finance and it’s available  on Yes Bank’s  website here and on egazette website  here 

While I commend the Government on it’s promise to protect all depositors monies what caught my eye in it was this absolutely ridiculous clause 3, sub clause 8(a)  that essentially puts 75% of the shares held by existing investors in quarantine or lock in for three years too along with 75% of  the new shares to be allotted to State Bank of India and other Investors at Rs 10 which too will enjoy a capital tax gains exemption.Only small shareholders holding less than 100 shares will be exempted from this restriction.Here’s it verbatim :

(8) There shall be a lock-in period of three years from the commencement of this Scheme to
the extent of seventy-five per cent in respect of-
(a) shares held by existing shareholders on the date of such commencement;
(b) shares allotted to the investors under this Scheme:
Provided that the said lock-in period shall not apply to any shareholder holding less
than one hundred shares.

Is this a joke !? but then it’s not April 1 yet !

Is the Government protecting the minority shareholders or actually safeguarding the incoming Bank and other High Networth Investors who have committed to participate at just Rs 10 per share with capital gains tax exemption too in this Yes Bank Scheme of Reconstruction,2020 ? 

Yes Bank too has notified the exchanges yesterday of the Scheme of Reconstruction highlighting the above lock in

Yes Bank covered extensively in my Equity Workshops past two years

For the past two Years most of the fundamental ‘Value vs Price’ equity workshops that I conducted showcased Yes Bank Case Study in detail and why though quite a few participants thought it looked great in 2019 at Rs 115 and then later even at Rs 80, why one should not be foolishly courageous as the true stress in Advances was clearly not visible and Networth could be wiped out on true provisioning .

There were so many peer parameters that pointed out that Yes Bank was in difficulty and heading for more ,For instance even for 2018/19 the Investments + Advances were less than Deposits+Debt giving a ratio less than 1 . Also Deposits being less than Advances indicated to Debt being resorted to aggressively grow Advances.This is borne out by an unusually high 45% ratio of Debt to Advances and the high 30%+ CAGR in Advances past five years which also doubled in the last two years  .This, coupled with offering higher interest to depositors, and inspite of a 30%+ CASA, affected Net Interest Margins too  which at 3.2 % in 2018/19  were  the lowest among top private Banks .

I’m not going to comment on how deliberately and wantonly the Advances were advanced in hundreds and thousands of crores to specific groups and cronies who then in return returned the favour to the Promoter Family in many ways as is being accused in the ongoing Enforcement Directorate and CBI enquiries .This is not the first Bank who may have done this and certainly will not be the last.

Dynamic Chronology of Events in March 2020 concerning Yes Bank 

Here’s the  Chronology that first trapped Depositors and now traps Shareholders and releases the Depositors!

March 5,2020 ~ RBI invokes Sec 45 of the Banking Regulation Act (1949) and applies to the Central Government to impose a Moratorium on Yes Bank for thirty days till April 3,2020 .Government does so.In exercise of the powers conferred under 36ACA of the Banking Regulation Act 1949, the Reserve Bank , in consultation with Central Government, supersedes the Board of Directors of Yes Bank Ltd. for a period of 30 days owing to serious deterioration in the financial position of the Bank. This has been done to quickly restore depositors’ confidence in the bank, including by putting in place a scheme for reconstruction or amalgamation. Mr Prashant Kumar, ex-DMD and CFO of State Bank of India  appointed as the administrator under Section 36ACA (2) of the Act.Yes Bank Account holders restricted to withdraw only Rs 50000

March 6,2020 ~ RBI announces a Draft Scheme of Reconstruction  inviting suggestions and comments from members of public, including the banks’ shareholders, depositors and creditors on the draft scheme by March 9,2020

Para 4 of Point 6 was : The instruments qualifying as Additional Tier 1 capital, issued by the Yes Bank Ltd. under Basel III framework, shall stand written down permanently, in full, with effect from the Appointed date. This is in conformity with the extant regulations issued by Reserve Bank of India based on the Basel framework.

This was immediately challenged in the Bombay High Court and media reports a compromise was reached subsequently that the holders of the  Rs 8695 crs bonds will be allotted 170 cr shares at Rs 10.This effectively means the holders would recover their principal if Yes Bank Share Price touches Rs 51.These shares too would be under a three year lock in though

Early Hours of Sunday,March 9,2020 ~ Promoter of Yes Bank and for MD & CEO Mr Rana Kapoor arrested by the Enforcement Directorate

Post Market Hours Friday,March 13,2020 ~ Press Conference covered live where three Cabinet Ministers ,including Finance Minister,Mrs Nirmala Sitharaman, announced cabinet decisions taken earlier in the day.FM highlighted a few points of the Yes Bank Scheme of Reconstruction but not the controversial point of lock in for existing shareholders as above .The Official Notification followed the same evening

Late night 11.51 pm Saturday, March 14,2020 ~ Yes Bank notifies Exchanges of it’s much delayed Q 3 FY 20 Results ~ Oh Boy ! The Bank has posted a consolidated loss of  Rs 18564 crs in Q 3 FY 20 and Rs 19098 crs for the nine months at December 2019  with the auditor BSR & Co giving a qualified conclusion in their Limited Review and  raising material concerns related to the Bank continuing as a ‘going concern’…more on this later below

Past Midnight at 12.05 am and 12.08 am Sunday,March 15,2020 ~ Yes Bank notifies Exchanges on Allotment of Shares made on March 14,2020 as per Scheme of Reconstruction which had prescribed to do so within two working days of the Commencement of the Scheme and issues a Press Release and Investor Presentation for Q 3 FY 20 and Nine Months to December 31,2019 results  

Wednsesday,March 18,2020 ~ Moratorium to be lifted at 6 pm for Depositors after Fresh Equity Infusion  under the Scheme of Reconstruction

Critical Observations on the Draft Scheme of Reconstruction and the Final Scheme 

Nowhere in the RBI Draft of March 6,2020 that sought feedback was it stated that existing shareholders holding 100 shares and above will too have a lock in of three years of 75% of their holdings ! Thus how could one have challenged this controversial clause that is there is the Final Gazetted notification 

This clearly seems to have deliberately not been disclosed in the Draft and to probably close the road for any litigation through challenging in court,it has been announced as a gazetted notification by the Department of Financial Services of the Ministry of Finance rather than a RBI Notification

Also the proposed write down of the AT 1 Capital as stated in the Draft does not find mention in the Final Gazetted Scheme as the matter is now challenged in the Bombay High Court.If the shares lock in for existing shareholders was stated in the Draft then it too would have been challenged in court and would not have been part of the Final Gazetted Scheme      

Two Arguments in favour of the Lock in

An argument can be made that on the Principles of Equity the Shareholders will get any amount left if at all only after all liabilities are paid off,that would largely mean depositors in the case of a Bank ~But Yes Bank is not under liquidation but will continue to operate as a going concern

Another school of thought would say this lock in is in the best interest of shareholders as they will get the benefit of any price movement upwards in the next three years as  they would yet be holding at least 75% of their shares ~ it would be like taunting a caged Lion with a piece of Meat from outside ! ~ sees it,owns it, but can’t enjoy it !

But this is not the Point ? 

Just too many immediate questions pop up

• what happens to freedom of choice ?
• what happens when a shareholder has an emergency need of funds ?
• how will this lock in clause be monitored for existing shares that were free till yesterday ?
• what about Yes Bank shares purchased yesterday?
• could this also be insider knowledge at work in the F & O where the March Future was available at a 20% discount to the underlying ! ?
• what about F & O outstanding exposures?
• will fresh share purchases from Monday be freely tradable ?

My sense is that 75% of one’s existing Yes Bank Holdings will be automatically marked under lock in in one’s demat account.New Purchases from Monday March 16,2020 will be not marked as such.There needs to be some clarity on purchases of Thursday ,March 12 and Friday March 13 that will reflect in the demat account only only on Pay Outs this week .

Why were existing shareholders  not allowed also to participate in the Scheme of Reconstruction at just Rs 10 in the Scheme through a Rights Issue and also get the same capital gains tax exemption being given to incoming Investor Bank  State Bank of India and other incoming investors Banks and others under this Scheme of Reconstruction?

What if Yes Bank yet does not come out of the woods and Share Price falls in the next three years ? Shareholder is locked in to Zero ,unable to book even a loss !?

Just too many questions !

Why was Yes Bank not allowed to collapse & die like Lehman was in USA in 2008/9 ? 

Many have asked me why was Yes Bank not allowed to collapse & die like Lehman was in 2008/9?

Here’s obviously why Yes Bank needed a rescue or it would otherwise have set in a disastrous contagion effect in our already stressed Financial and Banking Sector : These are Data Points from the half yearly at September 30,2019 except for the Shareholding .

• Yes Bank is the fifth largest private bank in India ~website states this though Q2 FY20 Press Release says 4th
• There were 1.66 million shareholders as on December 31,2019
• Deposits at September 30,2019 were Rs 2,09,423 crs
• Advances at September 30,2019 were Rs 2,24,382 crs
• Networth at September 30,2019 was Rs 27726 crs
• Book Value was @ Rs 109 with Equity at Rs 510 crs
• Over 24000 Employees jobs at stake

Advances are the key here to Yes Bank’s stress.Only a forensic audit can reveal the real incremental stress, the underlying asset quality of the loan book, any understatement of NPAs, short provisioning and any willful defaulters .On November 1,2019 the Bank issued a press release of it’s half yearly results at September 30,3019  Makes for interesting reading .61.9 % of the Advances were Corporate in nature with Gross NPAs disclosed at 7.39% under a heading ‘Recognition cycle nearing an end”

What obviously was not revealed was the increasing stress in liquidity as media reported that  Yes Bank resorted to selling @ Rs 15000 crs of it’s retail loan book since September 2019 to Public Sector Banks under the Inter Bank Participation Certificate Route to raise urgent funds  to repay Depositors pulling out Monies.

Just Announced Q 3 FY 20 & Nine Months to December 31,2019 Results 

Q3 FY 20 Results and for the nine months to December 31,2019 have just been released a hours ago  near Saturday midnight ,March 14,2020 followed inside minutes by allotment of shares under the Scheme of Reconstruction and Press Release & Investor Presentation of the Results .Refer to Chronology above   .

Here are some stunning highlights from the unaudited Consolidated Financials :

• The Administrator appointed on March 5,2020  by RBI ,Mr Prashant Kumar, has made an assessment of Yes Bank’s ability to continue as a going concern based on the projected financial statements for the next two  years and is satisfied that the proposed capital infusion and the Bank’s strong customer base and branch network will enable the Bank to continue its business for the foreseeable future, so as to be able to realize its assets and discharge its liabilities in its normal course of business. As such, the financial results continue to be prepared on a going concern basis.
• Auditors BSR & Co have given a qualified conclusion in their Limited Review Report voicing material uncertainty related to going concern.In their view the said assumption of going concern is dependent upon the degree of success of the final reconstruction Scheme, the quantum of capital infused into the Bank and the Bank’s ability to stabilise its deposit balances post withdrawal of moratorium by RBI. Their conclusion is not modified in respect of this matter
•  Q 3 FY 20 loss is Rs 18564 crs  & Nine Months at December 31,2019 Loss is Rs 19098 crs .Nine Months at December 31,2019  Operating Profit is Rs 3363 crs before Provisioning of Rs 27886 crs   
• Higher Gross NPAs of 18.87% have now been recognised at Rs 40709 crs closer to reflecting a honest reality.It was recognised at  7.39% and Rs 17134 crs on September 30,2019 
• Capital Adequacy Ratio on Basel III Norms  has slumped from 16.3% at September 30,2019  to 4.2% at December 31,2019.Common Equity CET 1 Ratio has dropped to just 0.6 capping the AT 1 Ratio and Tier II Ratio at 1.5% and 2% respectively.This is below RBI Prescribed CET 1 of 7.375%. Bot CET 1 and CAR are set to improve immediately on infusion of Capital and write off of AT 1 Capital to above that as required by statutory and regulatory norms
• Deposits dropped alarmingly by nearly 21 %  and Rs 43668 crs in Q 3 to Rs 1,65,755 crs at December 31,2019 and post this in 2020 have dropped even further to Rs 137506 crs ,a 1/3rd drop of Rs 71917 crs and over 34 % inside six months in the second half of FY 20
• Deferred Tax Asset Position at December 31,2019 is Rs 8029 crs which the Administrator assesses will be utilised as the bank will have taxable income based on the financial projections he has approved for the next two years  
• An additional Rs 15422 crs Provision was decided to be made after reviewing post December 31,2019 period events that unfolded which saw more NPA slippage and Rs 5150 crs was further classified as NPAs.It was also decided to increase the Provision Coverage Ratio (PCR) even beyond RBI prescribed requirements.The PCR thus was enhanced from 43.1% at September 30,2019 to 72.7% at December 31, 2019 
• Multiple Corporate Governance Issues and Complaints against Promoter Rana Kapoor continue to be investigated internally and externally for money laundering, fraud and nexus with Borrower Groups
• External Borrowings of US $ 1.8 billion were linked to maintaining external credit ratings.Since these dropped the Borrowings have to be repaid.Till February 2020 US $ 1.18 Billion of Borrowings were repaid 

The Press Release & Investor Presentation reveal that :

• Net Interest Margins have precariously dropped to just 1.4% at December 31,2019 from 2.7% qoq largely due to Yield on Advances dropping from 9.8% to 8.4% qoq.Cost of Funds dropped from 6.7% to 6.6% while Cost on Deposits dropped from 6.7% to 6.4% qoq
• Net Advances at 186099 crs declined 24% yoy and 17% qoq
• CAR will climb back from 4.1% to 13.6% on Capital Infusion of Rs 10000 crs and AT 1 Capital write off considered for Rs 8415 crs 
• Networth drops to Rs 9218 crs after the Q 3 FY 20 loss plunging the Book Value to Rs 36.1 at December 31,2019 from Rs 109 at September 30,2019
• CASA is 32.1% at Rs 53203 crs ( down 28.2 % yoy and 17.5% qoq) with Current Accounts at Rs 23440 crs (down 20.6% yoy and 5.9 qoq) and Savings Bank at Rs 29764 crs (down 33.2% yoy and 24.8% qoq) 
• 97% & Rs 39501 crs of the Gross NPAs of Rs 40709 crs are from Corporate Advances 
• Retail Advances now constitute 20%+ over the 15% yoy
• Total Headcount was 24687 at December 31,2019
• Fresh Equity Capital Infusion is Rs 10000 crs at Rs 10 per share under the Scheme of Reconstruction

Clearly Yes Bank has it’s job cut out to focus first on Deposit Stabilisation and then on Deposit Mobilisation and increase the % Component of Retail Advances 

Equity Capital Infusion under the Scheme of Reconstruction  

Pre Issue Equity of Yes Bank was  Rs 510 crs comprising of 255 crs Equity Shares of Face Value Rs 2

Yes Bank has just allotted 1000 equity shares for Rs 10 each share under the Scheme of Reconstruction to raise Rs 10000 crs (Rs 2000 crs goes to Equity and Rs 8000 crs to Share Premium) as below :

Sr	Bank	No of Shares Allotted of FV Rs 2 in Crs	Capital Infused at Rs 10 per share in Rs Crs	% of Post Issue Equity
1	State Bank of India	605	6050	48.2
2	HDFC Bank	100	1000	8
3	ICICI Bank	100	1000	8
4	Axis Bank	60	600	4.8
5	Kotak Mahindra Bank	50	500	4
6	Bandhan Bank	30	300	2.4
7	Federal Bank	30	300	2.4
8	IDFC Bank	25	250	2
		1000	10000	79.8
9	Pre Issue Existing Capital	255		20.2
		1255		100

Equity Infusion Impact on Book Value & Market Capitalisation

Equity Infusions as above takes the Equity up to Rs 2510 crs  comprising of 1255 cr shares of FV Rs 2  and the Networth to Rs 19218 crs  giving a Book Value Rs 15.31

At Friday ,March 13,2020 Closing Share Price  of Yes Bank of Rs 25.50 the Market Capitalisation will jump from Rs 6500 crs levels to over Rs 32000 crs levels 

Another round of fresh infusion is indicated as the Scheme states that in the next three years State Bank of India cannot reduce their holding to under 26%.This can only happen only on further dilution of Equity for even if SBI sells upto 25% free quotient of their shares allotted which are not under lock in, their stake drops to just over 36%.It can therefore drop towards 26% only if further Equity Dilution takes place.Raising Authorised Equity Capital to Rs 6000 crs ( does not include Preference Capital retained at Rs 200 crs) leaves space to issue another 1745 crs shares in the future

The Book Value of Rs 109 on September 30,2019 had collapsed to Rs 36.1 at December 31,2019. It has further dropped to just Rs 15.31  as Shares  have been issued at just Rs 10 which is below Book Value and also below the current Market Price of Rs 25.50 ~ SEBI Pricing Formula being bypassed by the Government~ just recently the RBI & the Government did not find one of the major overseas investor as fit and proper to invest in Yes Bank though a commitment had been received to invest as per the SEBI Pricing formula

What happens to the AT 1 Capital?

Q 3 FY 20 Results show AT 1 Capital outstanding of Rs 8695 crs

Where does then Rs 1700 crs equity issue  fit in now for the Additional Tier 1 Capital Lenders compromise as commented by me above in this post  ?.My sense is it would be in the fresh second round of Equity Raising.Why would the Lenders apparently have so readily and quickly agreed to let go 80% of the outstanding Principal of Rs 8695 crs ? At  Rs 51 price these Lenders would be recovering their full principal of Rs 8695 crs

Anyway,this does not feature in the Scheme of Reconstruction and as the matter is now in court and negotiations are on,this part conversion to Equity may or may not happen and Yes Bank may write down all of the AT 1 Capital .In fact it’s Q 3 FY 20 Press Release and Investor Presentation states a proposed write down of Rs 8415 crs of AT 1 Bonds that along with capital infused will bring back the CAR and CET 1 ratios back above statutory and regulatory requirements

Interestingly the Book Value rises  even assuming these Lenders are allotted 170 cr shares at Rs 1o which is lower than existing book value.This is due to the write down of AT 1 Capital not converted to Equity.The Equity will go up to Rs 2850 crs and Networth to Rs 20918 crs  + Rs 6995 crs worth of this Capital that would be written off giving an adjusted Networth of Rs 27913 crs and thus a higher Book Value of Rs 19.59.Any further dilution of Equity at Rs 10 will drop this Book Value

Let’s see how the AT 1 Capital Drama unfolds

Some Observations 

With Deposits dropping by nearly a whopping Rs 72000 crs and taking a heavy toll on liquidity, Yes Bank needs a high dose of Liquidity of at least Rs 50000 crs . Capital Infusion will start with this Scheme and lines of credit from RBI are expected to supplement

Yes Bank was lucky it had somehow managed to convince some Institutional Investors in August 2019 to invest Rs 930 crs(US $ 273 m) at Rs 83.55  per share in fresh equity but then subsequent efforts to raise more ,even at lower levels and despite commitments received as conveyed to RBI, were all in vain.Those Investors must be feeling mighty foolish right now

Yes Bank ranks after HDFC Bank,ICICI Bank and Axis Bank and Kotak Mahindra Bank (KMB) .At December 31,2019  KMB’s Advances were Rs 216774 crs similar in scale to those of Yes Bank at September 30,2019.Yes Bank’s Advances have dropped 17% qoq to Rs 186099 crs.All these Banks are contributing to save Yes Bank ! ~ amusingly their Mutual Fund Wings own Yes Bank too and so this Rs 10 allotment will offset the loss in MF holdings in the Bank Group.

Just imagine ! Yes Bank & KMB were till September 30,3019 virtually neck to neck in scale of Advances and Deposits but the Market Cap of KMB at Rs 1470 now is the seventh largest  and third among private banks as of date in India at a whopping Rs 2,81,238 crs while Yes Bank at Rs 25.50 has been a wealth destroyer at just Rs 6500 crs pre scheme of construction.Yes Bank’s Deposit base since then has sunk one third inside six months as panic set in. Just also Imagine ! both,KMB and Yes Bank commenced operations nearly simultaneously with the former in 2003 and latter in 2004

Yes Bank ,in lighter vein as is being circulated,may just be renamed KASHI Bank after it’s government directed major saviours !

Yes Bank’s website yet boasts this “YES BANK is steadily evolving as the Professionals’ Bank of India with the long term mission of “Building the Finest Bank of the World in India by 2020” ~ we’re in 2020 already and you could replace the word ‘Finest’ with any ‘F’ of your choice

Existing shareholders ,for your existing shareholding in Yes Bank, you guys are Lions in the Cage next three years ~you may see and own the meat but cannot eat  ~ fully that is ! ~ consolation maybe that the truant Promoter Rana Kapoor too is in the cage today !

Yes,you could buy more Yes though ! ~ but then again we are not privy to all the insider moves happening all around ~ seems they’re all in it together~ do I need to spell out ‘all’

Also post issue Yes Bank’s P/BV will be @ 1.7 at Friday’s closing of Rs 25.50 and a post issue Book Value of Rs 15.31 ~ near double that of the chief saviour SBI but much lower than the four top private banks ranked above it

The New Board constitution as per Clause 5 of the Scheme show a few were  ex PSU Bank heads.With PSU Bank SBI to hold 48.2% equity the Private  Yes Bank is effectively being nationalised

One Last Observation ~ Share Price koh kya Hoga ?

Oh ! one last observation ~ 75% of the Equity will be under lock in for three years ! => 75% of 255 cr existing shares assuming all of the 1.66 million shareholders hold at least 100 shares + 75 % of the fresh issue of 1000 cr shares under the Scheme of Reconstruction ~ implying just 313.75 cr shares will be available for trading just now ~Yes Bank also exits Derivatives Segment on March 26,2020 where there was a 20% discount to underlying available till Friday 

What do you think will happen to the Share Price of Yes Bank in the coming week and going ahead ?

Re-read the Blogpost and you will get quite some threads to unwind the knots on for some answers  

Does it matter in the short term if you’re locked in for three years for 75% of your holding  if you already own it !? You’re angry at this lock in and fresh buying may be the furthest from your mind 

Update 9.45 am,Monday,March 16,2020

Sensex down over 2000 points at under 32000 but look at Yes Bank surging !

This morning Yes Bank has surged 35% past Rs 34 as I update after a high touched of Rs 37 which is the revised upper circuit now

If you had read the blogpost you would have got a sense of this

I urge the Government not to now issue further Shares at Rs 10 ! Remember there is space to issue a further 1745 cr shares

Also remember  SBI owns 48.2% of Yes Bank ~ this should ensure that Deposit Stabilisation and Mobilisation gets an upward tick in due course  to bring back the levels back past 150000 crs and onward to Rs 200000 crs

Also announced by the Exchanges is that Yes Bank is to pre-pone it’s exit from Derivatives to March 19,2020 instead of March 26,2020

Just thinking aloud ! ~ do you think these new incoming investors will book 25% of their holdings at this price of Rs 34 as allowed to ? If they do their holding cost for the locked in 75% will come down to just Rs 2!

Why this Government largesse  to them to allot at just Rs 10?

Just a thought

WOW ! its up over 55% and crossed Rs 40 at 10 am as I close this update ! If the New Investors coming in at Rs 10 sell 25% of their Holdings their holding cost for remaining 75% locked in is ZERO !

WOW! Market Cap jumps overnight,actually over weekend to over Rs 50000 crs from Rs 6500 crs ! with this equity infusion of Rs 10000 crs at Rs 10 & 75% lock in that knocks off most of the floating stock available for trade as pointed out in the last paras of the main blogpost

Second Update Wednesday 10.30 am,March 18,2020

WOW ! Share has shot up to Rs 80 with Market Cap now over Rs One Lakh Crs ! just few days ago last week it was under Rs 5000 crs !!! ~ Now yet trading in the high Rs 70 to Rs 80 range

Now suppose this scenario :

• Yes Bank exits Derivatives tomorrow ~ this abnormal surge could be related to this as shorts are being squeezed into oblivion and forced to cover
• All new Investing Bankers in the Scheme will not sell full 100% of their 1000 cr shares allotted at just Rs 10 for the next three years even though allowed to sell 25% or 250 crs shares ~ SBI has already confirmed this yesterday for the 605 cr shares they have been allotted in the Scheme
• The Networth as stated above after the Scheme is Rs 19218 crs on 1255 cr shares giving a book of just over Rs 15
• This Networth at March 31,2020 should be higher than Rs 30000 crs as Yes Bank plans to write down Rs 8415 crs of AT 1 Bonds + after provisioning of nearly 41000 crs for the Nine months at December 31,2020 in last quarter Q 4 FY 20 the bank may actually show a profit. Assuming a networth of Rs 30000 crs the Book Value would be @ Rs 24
• No let’s say the remaining 1745 cr shares that yet remain to be issued out of the Authorised Equity Capital of 3000 cr shares are issued in FY 21 at around current market price of Rs 80 ! ~ that would now not make those in August 2019 who were placed shares at Rs 83.55 look foolish ~ and it would move the Networth up dramatically to @ Rs 170000 crs by infusing @ Rs 140000 crs ~ The Book Value will surge back to @ Rs 57
• With Yes Bank back on track with deposits stabilised first and mobilised ,adequate provisioning in place for NPAs,no incremental NPAs and in fact recovery on the NPAs  and back into profits giving a P/BV of 2 is reasonable
• Yes Bank may just get back to becoming the fourth largest private bank (you may argue it’s not really that private now with SBI holding the reins with a high equity stake) pushing KMB to fifth place
• Lot of people are arguing if a Rs 6000 cr Equity Base can be serviced well ~ In FY 18 Yes Bank earned Rs 4225 crs which dropped to Rs 1720 crs in FY 19 as NPA troubles surfaced strongly and there was a run on deposits especially in the past few months of ongoing FY 20 .FY 20 will close with a huge loss that’s already reflected in collapsed networth at December 31,2019.Q 4 FY 20 may show some operating profit and a higher bottomline if the AT 1 Bonds are written down as proposed by Rs 8415 crs .This is a one-off.FY 21 & FY 22 will bring back colour to the bottomline as the SBI Administrator & soon to be the new CEO sees and is the reason Q 3 FY 20 and nine months results at December 31,2019 have been prepared on a going concern basis with even Deferred Tax Assets of over Rs 8000 crs recognised and carried in the balance sheet to offset future profits. Assuming Rs 4000 crs Bottomline ,the EPS on existing 1255 cr shares will be Rs 3.2 & on full capital of 3000 cr shares,if further 1745 cr shares are issued as they will be surely, the EPS will be Rs 1.33 .The Forward PE will be 25 & 60 respectively on the lower & full capital.Thus earnings basis of valuation gives ammunition to those who argue it will be difficult to service such a high Equity.More so we have assumed Profits will return to FY 18 levels of Rs 4000 crs. What if this takes more time than the next two years ?

That is why any or all of the remaining 1745 cr shares that can be issued  should not be issued at Rs 10 or even at Rs 30 for that matter ! ~ Scheme Price at Rs 10 is already a controversial issue along with the lock in of 75% for existing shareholders.There will be an uproar if even further shares are issued at a low price ,especially as low as Rs 10 ~ though with high market price prevailing ,I’m sure they will be issued at a handsome premium,hopefully at current market price levels of Rs 80 as assumed in the scenario above

But First let’s see where Yes Bank’s Share Price settles after Yes Bank Moratorium ends this evening at 6 pm and Yes Banks exits Derivatives tomorrow

Existing Shareholders as on Friday ,March 13,2020 should be actually enjoying their 75% lock in  praying the Share Price only gets better after three years ~ for I bet,if these shares were not locked in ,many would have sold on Monday and yesterday at levels between Rs 30 and Rs 60

I know what you’re thinking ! ~ if not,you should be ! ~that I wish I too was in the place with the New Incoming Banker Shareholders at Rs 10 & making a neat notional 7x profit of Rs 70000 crs in just three days on Equity Infusion Investment of Rs 10000 crs ~ I promise I won’t and I can’t hold it against you for thinking like this !

Some parting thoughts ~ just imagine the Issued paid Up and new Authorised Equity Capital both are the same with  3000 cr shares of Rs 2 aggregating Rs 6000 crs outstanding (this will happen when the remaining 1745 cr shares that can be issued are actually issued) .At current market price of Rs 80 that’s a whopping Market Cap of Rs 240000 crs ! or US $ 32 Billion ! ~ not bad for a Bank which was available at under Rs 25 & under Rs 6375 crs Market Cap & under a Billion Dollars just last week 

At this price of Rs 80 crs ,even if a compromise is reached with the AT 1 Bond holders of Rs 8695 crs as covered earlier in the blog post,then fewer number of shares (108 crs to be precise)will be needed to be allotted to them at Rs 10 to recover their principal or else if they were indeed allotted 170 cr shares as stated in the blog post above,they will enjoy a Capital Gains of nearly Rs 5000 crs !  & that cannot happen ! ~ Of course if any shares at all are allotted to them at lower than Rs 80 there will be an impact on Networth and a few other computations as well as outlined in the scenario above

Miracle or Manipulation ? ~ Whatever ! Enjoy !

Cheers,

Gaurav

Third Update 1.35 pm ,Saturday,March 21,2020 

The Registrars of Yes Bank are Karvy who have been in the news in 2019 for screwing up in their Broking Business and impacting thousands of Investors and in fact even the Broking Community who had to then deal with harsher and restrictive SEBI measures in an already challenging business environment

Now Karvy has again screwed up big time last week in settling the Yes Bank Share trades of Thursday,March 12,2020 & Friday,March 13,2020 and even Sales Trades of Monday,March 16,2020

The Scheme of Reconstruction was announced post market hours on Friday,March 13,2020.It put 75% of all existing holdings as of this date under lock in for three years

A New ISIN Number was released by the Depositories for Yes Bank and the old one is to cease after all effective settlements and transfers were made

Now here’s where Karvy has screwed up big time and I wonder why the media has yet to catch up with this

Was this deliberately done by Karvy to favour a few or are they just plain inept ?

Whatever,many have lost quite a lot on two counts of auction loss and more shares shown under lock in than it should :

1. Those who had purchased on Friday,March 13,2020 before the Scheme was announced understood that 75% would be locked-in for three years.Many thus on Monday,March 16,2020 sold 25% of their Friday purchases at opening prices of Rs 30 to Rs 36.These should have been delivered in the Wednesday Pay In of March 18,2020.However they could not be delivered as CDSL the Depository blamed Karvy who had not yet transferred the shares to the new ISIN under which delivery had to be done.Thus short deliveries were auctioned @ Rs 61! on Thursday,March 19,2020 and selling clients debited with this.Their auction loss is Rs 25 to Rs 30 per share sold for no fault of their own!.I am told that CDSL personnel had the cheek and gaul to chide the Brokers for allowing clients to sell 25% of their Friday purchases on Monday,March 16,2020 ! 
2. When Karvy actually initiated the process to transfer the Friday Purchases in the new ISIN ,the free component amounts to just 15.62% of the Friday Purchases and not 25% effectively locking in 84.38% and not 75% as stipulated under the Scheme 

I understand a complaint has been emailed yesterday to Karvy ,SEBI ,Exchanges and CDSL.Even if Karvy resolves Screw Up 2 above ,will they take the loss for Screw Up 1 above? CDSL says it was Karvy’s responsibility for correct reflecting the transfers in a timely manner too  so that  problems would not have arisen as above

Who will Karvy pass the buck too for not releasing the instructions to them in time   !? ~ RBI,Yes Bank,MOF?  or the Corona Virus COVID-19 Crisis  !?

Yes Bank closed down at Rs 43 levels yesterday after opening and racing for a minute to Rs 67

Disclaimer :

I had initiated an exposure in Yes Bank last week when it crashed post moratorium announcement because Yes,I believed it would be supported quickly in March itself  as it was too big to be allowed to fail