Yes Bank plans to sell fresh shares at 4-6 times the ‘price to book’ value through a follow-on public offer or a private placement, Rana Kapoor, managing director and CEO, said in a interview on Monday.
On Sunday, Kapoor had said that his bank will raise $400 million through a combination of equity and debt. $150 million will be raised in the next few months by selling tier-II bonds, Kapoor said. “We have $150 million headroom on Tier II and we have to use it before interest rates start going up,” he said. Tier-II capital is raised by selling bonds with a maturity a minimum of two years to more than 15 years.
Besides selling bonds, Kapoor also said that the bank plans to raise an additional $200-250 million Tier-I capital later this year.
“It could be an FPO or private placement. We want to keep options open. Our experience with private placements has been good, with Orient Global in December 2007 and Swiss Re in December 2006,” he said.
Tier-I capital mostly consists of equity which means that money once borrowed does not have to be returned.
Yes Bank is comfortable on the capital side with an adequacy ratio of 16.63%. Kapoor said that in case of an FPO, the price to book ratio is “fairly low” currently, so the bank will like to wait for a better value for its shares.
“Right now (the price to book) is fairly low at 1.60 to 1.75 times…our bank has been able to raise capital anywhere between four to six times the price to book in the past, so we will await an attractive opportunity when we see the bank’s valuations coming back,” he said.
Price to book ratio is a calculated by dividing the market price of the share by its book value. Book value of the share is got by dividing the total net worth (share price + reserves) by the number of outstanding shares. A DNA calculation showed that Yes Bank’s book value per share currently is Rs 54.69 and a four times price to book value means the share price has to be at Rs 219.
The bank’s per share value is currently Rs 130. If the bank sells shares at current value, it would have to sell 7.35 crore shares. But at Rs 219, only 4.36 crore shares will have to be sold.
Kapoor expects his balance sheet to grow to Rs 40,000 crore in 2009-10 from Rs 22,900 crore at the end of 2008-09. He expects a minimum of 30% growth in each of the next six months, targeting a balance sheet of Rs 1,25,000 crore to Rs 1,50,000 crore by 2015.
Yes Bank also plans to outsource its ATMs to one single national operator to save costs in managing ATMs without compromising on the branding. “We will be looking at a model which will be different. Right now we own our ATMs, so as we come to the next phase of growth, it is quite likely we will look at variable costs and not fixed costs.
If you can reduce the cost-structure of ATMs through an outsourced model, then it becomes an attractive proposition. This is a model for future growth. What we propose is one national operator…where we shift fixed costs to variable costs.
Savings will be significant over a period of time because if you have variability over a period of time, you can reduce costs,” he said while refusing to give a timeframe for the same.
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