THE FIASCO OF YES BANK'S QIP

By Ruma Dubey

This entire fiasco of Yes Bank withdrawing its Qualified Institutional Placement (QIP) has left a really bad taste.

In today’s professional world, where there were a slew of advisors, Yes Bank with its eight member consortium of joint book running lead managers, it comes across as a really lame excuse to say that they did not know the rule book, were “ill advised” about keeping the QIP open for three days even after the issue was subscribed as per the Bank chief.  To be “ill advised” when one needs to go and talk to SEBI or wait for a formal letter to come is understandable but when all rules are today open and clear, somehow one cannot help but feel that there is more than what meets the eye. And that is probably what SEBI also felt which explains why the watchdog is sniffing discrepancies in the QIP issue of Yes Bank.

So what exactly happened? On 7th September, after markets were closed in India, around 7.30 to 8 PM, Yes Bank launched its QIP. The stock price had closed on 6th Sept at Rs.1440 and the floor price was at not the stipulated 5% discount but at Rs.1371 to 1450/share.

On 7th morning, the QIP opened at the higher price band of Rs.1450 and went on to close at Rs.1405. Bank’s MD claimed in 8th September that till 6AM the QIP was oversubscribed. But once the market opened for trading,  the share opened at Rs.1390, going down to Rs.1360/share, which was lower than the floor price of Rs 1371.

As per SEBI rules, a QIP, irrespective of whether or not it has got subscribed, needs to remain open for three days. This rule did make sense as global QIPs, with foreign investors participating, this buffer of three days is required, especially when the QIP was launched overnight.

And it is here that things started going wrong for Yes Bank. The price, once it slipped below the floor price of QIP, saw investors withdrawing from the QIP. Why would anyone buy a QIP which costs more than the current market price. Soon, the QIP issue had the look of a sunken ship with all deserting the stock – from oversubscribed, it was suddenly in a situation of no subscribers.  Hearing this news, even the existing minority shareholders got scared and they too scampered for cover, with the stock price closing at Rs.1330. By the end of the day, the announcement came in that the QIP had been “deferred”.

Now Yes Bank has taken umbrage under the lack of clarity in SEBI rules which stipulated keeping the QIP open for three days. But why not? If the stock is priced right and so is the QIP, how can three days jeopardize the entire issue?  Why is it that the stock price could not sustain volatility?

Some are blaming the bank for pricing the QIP so aggressively which is what made it unsustainable over three days. Pricing at four times the book value of FY16, many say that Rana Kapoor not budging over the pricing is what really did it in. Leaving very little or nothing on the table miffed the investors and they preferred to exit rather than buy into an expensive QIP. What we also learn is that there is no stipulation of keeping the issue open for three days as prior issue of Motherson Sumi closed within a day once the issue was subscribed.

Many say the crux of the issue is that Yes Bank was in a hurry to get the issue going, wanted to stick to its aggressive pricing. Why did Rana Kapoor prefer to cancel the QIP rather than discount the price?

SEBI is also investigating the stock - about the planned equity placement, the surge in the Yes Bank scrip in the run-up to the issue date and its intra-day fall before the announcement to call off the issue. SEBI is also questioning the Bank as to why there was no pre-intimation to stock exchanges that there would be a board meeting – Yes Bank held a Board meeting on 27th April and informed about the meet but as per rules, it should have informed the exchange by 24 or 25th about the ensuing Board meet.

Let’s see where this investigation heads. For now, this blotched up QIP has marred the image of the Bank; it will take a few more quarters of solid performances for the investors to forget and move on.