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With stake sales, Yes Bank is now poised for a makeover

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Yes Bank’s shareholding structure may witness a major churn by the year-end as founder Rana Kapoor has initiated talks to sell a part of his holding to One97 Communications Ltd, the parent of Paytm and Paytm Payments Bank.

Independently, a Reuters story on Tuesday cited Yes Bank CEO Ravneet Gill as saying that the bank is close to selling a minority stake to a global tech company as part of its capital-raising exercise. Although the bank subsequently denied these reports, Mint has independently verified that such talks might have indeed progressed somewhat.

The tech firm’s association is expected to help further the bank’s digital ambitions.

The bank has already been talking to large private equity firms for capital infusion. On 30 August, Yes Bank’s board proposed to increase the bank’s authorized share capital from Rs 800 crore to Rs 1,100 crore to enable an expansion in the paid-up capital.

If Rana Kapoor does manage to sell his stake to One97 Communications, or any other shareholder, it will not make any difference to the bank’s capital structure. Fresh equity issuance, on the other hand, will lead to dilution in promoter shareholding.

According to senior executives at Yes Bank, the promoters are willing to reduce their shareholding following this stake sale and also amend the articles of association, letting new shareholders get a board seat.

“We are open to reducing stake if the bank decides to sell a minority stake to a global tech firm,” Shagun Gogia told Mint. Gogia is co-promoter Madhu Kapur’s daughter and an additional director on the Yes Bank board. Madhu Kapur and her offices hold 9.17% stake in the bank, as of 30 June.

Rana Kapoor and his family offices hold 10.6% stake in the bank. A person close to Yes Bank’s co-promoter Rana Kapoor’s family said the stake sale to One97 would be completed through the stake held by Kapoor and his promoter group entity Morgan Credits Pvt. Ltd (MCPL); the combined holding of these two entities in Yes Bank is around 7.34%.

“There have been discussions between Kapoor, Yes Bank and several fintech firms including One97 Communications Ltd since August,” said the person cited earlier.

A statement issued by the bank to stock exchanges said: “The Bank in its usual and ordinary course of business continues to explore various means of raising capital/funds through issuance of securities to diverse set of investors, in order to meet its business/regulatory requirements, subject to compliance with prescribed procedures and receipt of statutes/regulatory approvals.”

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A One97 Communications spokesperson declined to comment on the story. Kapoor also declined to comment on this story. An email sent to Yes Bank also did not elicit a response.

If true, the deal will require RBI’s approval, given that One97 holds the licence for a payments bank. Questions are bound to be raised over whether the licence holder of a payments bank should be allowed to acquire a stake in a universal bank as it might be seen as a workaround. In addition, the widening of One97 Communication’s losses, as reported in Mint on Tuesday, is bound to weigh on the approval process.

Kapoor and MCPL also need to obtain consent from Reliance Nippon Life Asset Management Ltd (RNAM) to sell their stake, given that around 7.34% is pledged with RNAM. When contacted, an RNAM spokesperson said, “Reliance Nippon Life Asset Management has not given any consent and is not in discussion with anyone about Yes Bank’s pledged shares.”

Yes Bank co-promoter Rana Kapoor and his family-owned firm MCPL had to pledge their entire 7.34% or 170.25 million shares with RNAM. This was done because RNAM wanted to convert a previously unsecured loan (given to MCPL through non-convertible debentures) into a secured loan as the bank’s stock has lost 80% over the past year.

Last year, MCPL raised Rs 1,160 crore by selling non-convertible debentures to RNAM. A prepayment of ₹200 crore was made by MCPL to Reliance MF in November. The loan pact mandates that the value of Yes Bank shares (held by Kapoor and MCPL) should always be greater than double the loan outstanding.

The value of these 170.25 million shares as on Tuesday is around Rs 1,182.13 crore.

Yes Bank is in desperate need of fresh capital to improve its common equity tier-1 (CET-1) ratio adequately above the statutory requirement of 7.375% to stay afloat. The bank’s CET-1 ratio is marginally above this at around 8.6% after it completed its Rs 1,930 crore stock sale to institutional investors last month.

On 16 August, Mint reported that the bank is looking to raise an additional $600 million after raising $270 million from large investors through a qualified institutional placement.

The Yes Bank stock has been falling steadily since RBI indicated in August 2018 that Kapoor’s term as the bank’s CEO would not be renewed after January 2019. Since 20 August last year, Yes Bank shares have lost over 80% to Rs 63.10 as of Monday on the BSE.

Both MCPL and Yes Capital (India) Pvt. Ltd (which holds 3.26% in the bank) are fully owned by Kapoor’s three daughters.

In September 2018, after Yes Bank co-promoter Madhu Kapur sold a part of her holding, Rana Kapoor had tweeted how he regarded his shares as “diamonds”.

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India has potential for very rapid economic growth, says Bill Gates

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India has the potential for “very rapid” economic growth over the next decade which will lift people out of poverty and allow the government to invest in health and education priorities in an “exciting way”, billionaire philanthropist and Microsoft co-founder Bill Gates has said.

In an exclusive interview to PTI, Gates, the world’s richest person, specifically complimented India’s Aadhaar identity system and the country’s performance in the financial services and pharma sectors.

The positive outlook by Gates for the Indian economy, Asia’s third largest, comes at a time when it is reeling under major slowdown amid apprehensions that the cycle may last for a longer period.

“I don’t have any knowledge about the near term, but I’d say over the next decade, there’s potential for very rapid growth, which will lift people out of poverty and allow the government to invest in health and education priorities in a really exciting way,” he said.

On Friday, 64-year-old Gates, with a net worth of USD 110 billion, regained the position of the world’s richest person surpassing the Amazon Inc’s Jeff Bezos. The Microsoft co-founder has so far donated over USD 35 billion to the Bill and Melinda Gates Foundation for poverty reduction and social development programmes in various countries.

“… Everybody hopes that there’s really good growth because the potential is certainly there for India to have high growth,” he said.

Gates is currently on a three-day visit to India to review the work of his foundation in the country.

India’s economic growth slumped to an over six-year low of 5 per cent in the first quarter ending June this fiscal due to slower consumer demand and private investment.

The slump in growth has prompted many global agencies to cut India’s GDP growth by various degrees for 2019-20.

Gates also hailed India’s Aadhaar identification system as well as adoption of the UPI system.

“Well, in all of our areas, India’s been a key place where we find innovators and financial services. It’s fantastic the way that the Aadhaar identity system and the overall UPI system is gaining adoption, and there’s some great lessons out of that work,” he said. “We partner with people like Nandan Nilekani to think, okay, how do the lessons from India apply to other countries for things like digital identity or financial services,” he said.

Gates also complimented India’s pioneering work in vaccine manufacturing, saying the country has made impactful contribution in improving peoples’ lives.

“When people think of India, they think of the IT services and the great work done there. Less visible but certainly very impactful for improving the human condition is the great work done by the vaccine manufacturers, whether it’s Serum, who’s the largest, but a dozen others – Bharat Biotech, Bio-E, a number of companies,” he said.

In the last one decade, the Bill and Melinda Gates Foundation has been working in areas of health-care, sanitation, agriculture and financial services for the underprivileged people in India.

The foundation’s partnerships with Indian manufacturers have led to development of affordable efficacious vaccines which has enabled different countries to introduce these vaccines, said an official of the foundation.

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Govt mulls raising insurance cover on bank deposits to above Rs 1 lakh: Nirmala Sitharaman

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Finance Minister Nirmala Sitharman on Friday said the government will bring legislations on raising insurance cover on bank deposits from the current Rs 1 lakh and regulating multi-state cooperative banks.

These legislations will be brought during the Winter Session of Parliament starting coming Monday, the minister told reporters here.

These legislations assume significance in the wake of scam in the Punjab and Maharashtra Cooperative Bank affecting lakhs of customers who are facing difficulties in withdrawing their entire money due to restrictions imposed by the Reserve Bank of India.

At present, bank depositors get an insurance cover of Rs 1 lakh on their amount by the Deposit Insurance and credit Guarantee Corporation.

The finance minister also said the government has no plans to cut spending on welfare schemes and will encourage all the departments of the Union government to spend entire funds provided in the Budget.

When asked about the stress in the telecom sector, Sitharaman said, “We want no company to shut their operations. We want everyone to flourish.” Two major telecom companies — Vodafone Idia and Airtel — have posted a combined quarterly loss of about Rs 74,000 crore as they were hit by statutory dues after a recent Supreme Court ruling.

The minister further said the Committee of Secretaries (CoS), appointed to deal with financial problems being faced by telecom companies, “has not taken final decision yet”.

Days after the Supreme Court ordered telecom companies to pay as much as Rs 1.42 lakh crore in past statutory dues, the government had set up the CoS under the Cabinet Secretary to suggest measures to mitigate financial stress in the sector last month. PTI DP NKD CS MKJ

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Very critical situation for Vodafone in India, says CEO Nick Read

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Vodafone said its future in India could be in doubt unless the government stopped hitting operators with higher taxes and charges, after a court judgment over licence fees resulted in a €1.9 billion group loss in its first half. Chief executive officer (CEO) Nick Read said India, where Vodafone formed a joint venture with Idea Cellular in 2018, had been “a very challenging situation for a long time”, but Vodafone Idea still had 300 million customers, equating to a 30% share of the sizable market.

“Financially there’s been a heavy burden through unsupportive regulation, excessive taxes and on top of that we got the negative Supreme Court decision,” he said on Tuesday.

Vodafone had asked the government for a relief package comprising a two-year moratorium on spectrum payments, lower licence fees and taxes and the waiving of interest and penalties on the Supreme Court case, which centred on regulatory fees.

Asked if it made sense for Vodafone to remain in India without such a relief package, he said: “It’s fair to say it’s a very critical situation.”

India’s top court upheld a demand from the country’s telecoms department for $13 billion in overdue levies and interest last month, hitting the shares of both Vodafone Idea and rival Bharti Airtel.

Vodafone has clashed with Indian authorities over tax and regulatory issues ever since it entered the country with a $11 billion deal to buy 67% of Hutchison Essar in 2007.

The arrival of new entrant Reliance Jio Infocomm in 2016 added to Vodafone’s problems by sparking a brutal price war.

It responded by combining its operations with Idea Cellular, a deal that closed in 2018.

Read said Vodafone was not committing any more equity to India and the country effectively contributed zero value to the company’s share price. As a result of the ruling, it has written down the value of its stake in the joint venture to zero.

It also owns a stake in Indian tower operator Indus Towers, along with Bharti Airtel.

Vodafone’s shares were up 1.7% at 163 pence at 1040 GMT as investors focused on an upgrade to its earnings forecast rather than India.

UPGRADED FORECAST

The world’s second largest mobile operator reported improving organic revenue growth with signs of improvement in Spain and Italy and as it integrates a German cable acquisition.

It said organic service revenue rose 0.3% in the first half, as it returned to growth in the second quarter, while organic core earnings rose 1.4%.

It increased its forecast for adjusted core earnings to €14.8-15 billion from its previous forecast of €13.8-14.2 billion, but said India and lower cash flows following the sale of assets in New Zealand meant free cash flow would be “around” €5.4 billion, rather than the “at least” €5.4 billion previously forecast.

Apart from India, Read said he was pleased with progress.

“This is reflected in our return to top-line growth in the second quarter, which we expect to build upon in the second half of the year in both Europe and Africa,” he said.

Read cut Vodafone’s dividend for the first time in May after tough market conditions and a need to invest in its networks and airwaves caused him to backtrack on his pledge not to reduce the payout.

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