Just as Gadfly was urging Indian banks to use probity and charm to woo wary investors, one lender decided to rely on aggression and hubris.
The result? All-round embarrassment. Yes Bank's $1 billion share sale to qualified institutions globally had to be deferred on Thursday amid a slump in its share price.
Even in the bad loan-plagued Indian banking industry, it's highly unusual and awkward for one of the better-run private-sector lenders to knock on the door of international capital markets and get no answer. Nor is Yes Bank the only humiliated party here. When the bank informed the stock exchange it was aborting the issue because of extreme volatility caused by "misinterpretation" of a new regulation, it certainly didn't do any favors to the lead bankers, including Goldman Sachs, CLSA and prominent local brokerage Motilal Oswal.
So what caused the issue to collapse?
Yes Bank CEO Rana Kapoor told CNBC that the offer was fully subscribed at 4 a.m. in India on Thursday, but he was advised to keep it open for three days before the regulator would allow the shares to be priced and allocated. That inordinately long window rattled bidders, especially after the stock fell as low as 1,321.25 rupees, below the minimum 1,350 rupee new share sale price.
If Kapoor is right about the rule, everybody else seems to be breaking it. On Friday morning, Motherson Sumi, an Indian auto-parts supplier to Daimler, closed a share sale to qualified investors after launching the $300 million offer only the previous evening.
Besides, pinning the blame on a technicality masks the bigger problem. Put simply, the offer was aggressively priced, making opportunistic use of the froth in Yes Bank's share price over the past six months.
Yes Bank can always claim that it was merely following the Securities and Exchange Board of India's guideline on not unfairly diluting current shareholders. But in that case, it would have done well to eschew the hubris of trying to raise $1 billion -- half the bank's existing equity -- in a single shot from investors who may not be entirely convinced it deserved to be bought at more than four times last year's book value.
To be fair, Yes Bank has the lowest nonperforming asset ratio among 28 of the largest publicly traded lenders for which Bloomberg has data; its return on equity of 20 percent places it among the world's 10 most profitable lenders in the $5 billion to $10 billion market capitalization range.
In his CNBC interview, Kapoor brought up the successful share sale of 2014, when demand for the bank's $500 million equity issue reached $2.5 billion in six hours. (Those investors are sitting on price gains of 142 percent, far better than the fate of most Indian share sales that year.)
But then, the timing of that sale was very different. It was announced just three days after the inauguration of Prime Minister Narendra Modi's government and amid expectations of a quick end to India's private-investment strike.
Investors are far more skeptical now. Commercial credit from the banking system -- expanding at a less-than-satisfying 13 percent pace when Modi took office -- has since slowed to just 8 percent.
Yes Bank might continue to outperform its rivals, giving investors many good reasons to take a punt on it. But as one of the better-capitalized Indian lenders, it probably doesn't need $1 billion. After Thursday's 5.2 percent decline, the lender's shares opened almost 6 percent lower Friday. If shareholders didn't like the sale's opportunism, they seem to be hating the fiasco of its abandonment too.
Why not settle for a more modestly sized raising, and do the issue at a time when the shares don't look like they've already raced to the top of the cliff? A little bit of charm from Yes, and investors may not say no a second time.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
The price range of the offer was 1,350 rupees to 1,410 rupees.
In a sale to qualified investors, companies are prohibited from issuing shares to mutual funds and other large investors at a price below the average of the weekly high and low of the closing prices in the two weeks leading up to the offer.
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