Stock Market

Rana Kapoor on why Yes Bank deferred $1bn QIP

In an interview with CNBC-TV18, Yes Bank  Founder and MD Rana Kapoor explained why the bank had to defer its USD 1 billion qualified institutional placement (QIP) following the stock price reaction.

Yes shares fell 5.3 percent today to Rs 1,330 and below the QIP price band of Rs 1,410-1,350 per share. Kapoor said confusion over the new QIP guidelines led to the deferment and said the bank would approach Sebi for clarity. He added that response to the issue was strong and book was subscribed 1 time by 6 am in the morning today.

Below is the verbatim transcript of Rana Kapoor’s interview to Latha Venkatesh and Surabhi Upadhyay on CNBC-TV18.

Latha: What happen, where is the confusion on qualified institutional placement (QIP) guidelines?

A: The guidelines are little complicated because fundamentally they advised that the QIP has to be kept open for 3 days, amazingly we got a very good response and then in the consequences of this interpretation, things have got a little deferred and therefore we believe that once the understanding is very clear as at it is an Indian regulation, that even if you have a good response you must close and I was told to keep the QIP opened for 3 days, so naturally investors want a decision to be made ASAP and therefore the confusion.

Latha: But were SEBI rule changed recently, because we have seen a bunch of QIPs in the recent past as well.

A: It just so happened that to the best of my knowledge as I advised by our merchant bankers Goldman Sachs, Motilal and CLSA that these guidelines necessitates that the QIP and ours is a global QIP had to be kept open for 3 days, so therefore in the process the volatility sinks in, which I believe is not a very good policy, so I am going to represent that over the next few days and then open the QIP in course of time and I am sure that response will be even better then it was last night.

Latha: Are you saying that because SEBI asked you to keep the issue open till 3 days, there was a view in the market that the QIP didn’t get enough money and therefore people started pulling out, is that how you see it?

A: I tell you very honestly the response has been fantastic all I can tell you truthfully, because I was monitoring the register till 6:00 am in the morning. It was overwhelming, but the fact when we keep it open for 2 days and there is lack of understanding of the regulation, then why has the issue not been closed on the spot, the interpretation of the regulation if it required for it to be kept open for 2 days place uncertainty on the issue.

Surabhi: Can you elaborate on that point as you were saying the response was overwhelming in the beginning. If you could give a some sense on half the issue was subscribed, was quarter of it subscribed already and then what sort of confusion, even if the issue were to be opened if it was getting such great response, how would those 2 additional days have led to any sort of uncertainty?

A: It is a very good question, it is a very brilliant question, because fundamentally you cannot allocate, every investor in the world was not used to the complexities of Indian regulation wants to subscribe and to get with the allocation get allotment. With this 3 day window, the investor doesn’t know whether the entity that they are subscribing from will be able to get the allocation. This whole thing becomes like a bit of a mirage and therefore I am not in favour of this regulation and I am going to represent this as soon as next Monday. We are fully equipped, the response are fantastic, we were already 1 time book 4:00 am in the morning.

Latha: Could you not ask SEBI whether you could close it at 6:00 am today, what did SEBI tell you when you ask them?

A: I can’t ask SEBI at 6:00 am in the morning, because the regulation says under current circumstances to keep the issue open for 3 days and then to have a board meeting to decide on the same 2 days later. This doesn’t work in reality, because these are issues as in the past.

Latha: But the rules changed recently?

A: Yes, they have very much, they are very evident and we have had Allen & Overy, Luthra & Luthra, Shardul Amarchand Mangaldas advisors. So, naturally there are specialised lawyers who give us technical advice on the subject.’

Latha: It wasn’t that one of the things we heard from brokers it that there were some hedge funds who had put in their bids and the bank was not in favour of hedge funds. You all wanted long only funds?

A: No, nothing like this. All our lives we have worked very well and hedge funds in YES Bank has got very good return and we have a very book today, I can share my book with you. 42.5 percent is my foreign investment and out of that I only have 2.2 percent P-note book which is hedge funds, rest is investors we know and I can tell you 90 percent of the investors – so 42.5 percent ownership of YES Bank are long only.

Surabhi: What you just said it is a very important confidence building statement as well. You said at around 6.00 am you were already one time book on this issue. So, would you say that valuations are not a concern, this issue has not been deferred or taken off the table because you want to rework the valuation numbers?

A: No, because the three day window unfortunately created – let us say speculation to put it very simply and we are not in favour of speculation of stock on a bank which is a reputation business and I am not in favour of that. So, I instructed the bankers Goldman Sachs, Motilal and CLSA that we will do the deal later.

Latha: Was there a word to keep the issue open up to three days or does the rule say keep the issue open for three days because we heard confusion around that word.

A: The guidelines are abundantly clear that the issue has to be open for three business days and a QIP can be oversubscribed as was happening in our case within a few hours and that was the case in 2014 when in six hours I got a five times response on a USD 500 million issue and that was USD 2.5 billion fund and we closed it at 1.00 am and now my people tell me that the issue is coming up, the regulator is saying keep it open for three days, I don’t understand, nobody understands.

Surabhi: I am sure the bankers and their advisors to this issue would know the prevailing regulations wasn’t this discussed earlier this three day window that might make investors a little uneasy and now when you go back to bring the issue back to the market would you be looking at similar pricing points or would you be reconsidering the price as well?

A: What happens is every quarter and beyond when you prove your performance as we have for many quarters – for many quarters we have proven our performance. So, the fundamental point is that the book value goes up and with the tailwinds in the economy exceeding the headwinds and the headwinds getting somewhat marginalised the macroeconomic story of the banking sector is getting fantastic now. So, I am very happy in a way that later maybe better than sooner.