Institutional shareholders continue to take advantage of the run-up in Indian share prices this year by reducing or exiting their stakes in various stocks. The latest in line is Khazanah Nasional, which sold its entire remaining stake in Yes Bank through a block trade before the market opened yesterday.
The state-owned Malaysian investment company raised Rs5.3 billion ($106 million) from the transaction, which was priced at the top of a narrow range at a discount of just 1.2% versus Friday’s close. Credit Suisse was the sole bookrunner.
Notably, the offering came after Yes Bank’s share price jumped 8.4% on Friday, which brought the year-to-date gains to 53.3% and made the tight discount even more impressive.
However, a source noted that there was some additional demand for the stock after that big move, which Khazanah took advantage of. Indian banks were also given a boost after the central bank surprised investors with a 75bp cut in its cash reserve ratio to 4.75% after the market closed on Friday. The move will add close to $10 billion of liquidity to the banking system, according to analysts, which will reduce the cost of short-term interbank financing for the banks and at the same time allow them to use more of their capital resources to grow their loan books.
Khazanah sold 14.67 million Yes Bank shares, which accounted for 4.17% of the private sector lender and about six days’ trading volume. They were offered at a price between Rs360 and Rs362, which translated into a discount of 1.2% to 1.7% versus Friday’s close of Rs366.25 on the National Stock Exchange, and priced at the top of that range.
Even though the deal launched at 9am Hong Kong time, the source said it attracted good demand both from international long-only funds and domestic institutions. A few existing shareholders also submitted orders, although not in that big a size. At about 10am investors were told the deal was covered and the order books closed as planned half an hour later, giving the bookrunners plenty of time to complete the allocation before the Indian market opened at noon.
All in all, about 20 investors participated in the transaction, but according to the source about 70% of the shares went to the top three accounts, of which at least one was an international name.
Observers said the sell-down was somewhat anticipated as this was never viewed as a strategic investment for Khazanah. And hence it came as no surprise that it wanted to take advantage of the recovery in the Indian market to secure some profit. The Malaysian investment company bought into Yes Bank in March 2007 when the share price was trading at an average of Rs130 and at one point held about 5% of the lender. It has sold part of its stake in the open market, but yesterday’s selling price implies a gain of more than 170% -- a decent return in five years. The shares were held through an investment unit called Titiwangsa Investments Mauritius.
Other international financial institutions that have been monetising their investments in India this year include: Citi, which sold its remaining 9.85% stake in Housing Development Finance Corp (HDFC ) through a $1.9 billion block; Carlyle, which sold a smaller 1.4% stake in HDFC to raise $270 million; and Temasek, which trimmed its stake in ICICI bank by nearly half through a $300 million deal.
This has pushed the volume of secondary share sales in India to $2.8 billion so far this year, which is 61% above the amount sold in the same period last year, Dealogic data show. Including IPOs, India has seen $2.9 billion of equity capital markets activity in 2012, which is up 21% from this time last year and puts it third in the Asia-Pacific ex-Japan ranking behind China and Hong Kong.
Yes Bank’s share price dropped below the placement price for a short while mid-morning India time yesterday, but quickly recovered and finished the day just 0.45% lower at Rs364.60. Other Indian banks performed strongly in the wake of Friday’s CRR cut, which helped the benchmark Sensex index to add 0.5% and made India one of the few markets in Asia to finish higher yesterday. (Hong Kong was another, with the Hang Seng Index closing up 0.2%).
State Bank of India’s share price surged 3.8% and ICICI Bank gained 1.6%.
Yes Bank, which was founded by Rana Kapoor in 2004, posted a 34.6% gain in net profit in the nine months to December 2011 and a 29.9% improvement in net interest income. Its return on equity for the period stood at 22.5%.
Meanwhile, Goldman Sachs said in a recent report quoted by local Indian media that Yes Bank’s market share is likely to increase as its loan book is expected to grow at a compound annual growth rate (Cagr) of 26% in the fiscal years 2012-2014. The growth rate for the banking sector as a whole is expected to be just 14% to 15%.
The US bank has added Yes Bank to its Conviction List with a target price of Rs430, citing attractive valuations and re-rating potential. That suggests a further 18% upside from current levels.