Rabobank cuts stake in Yes Bank, raises $215 million

The Dutch bank reduces its stake from 15.9% to 4.9% to comply with a regulatory requirement as it prepares to launch its own banking unit in India.

Netherlands-based Rabobank yesterday sold an 11% stake in India's Yes Bank through an accelerated block trade, raising Rs9.8 billion ($215 million). Rabobank was required to reduce its holdings to below 5% as it is planning to apply for a full banking licence and set up its own banking unit in India. It will hold about 4.9% after this transaction.

The Citi-led block, which was launched after the Indian market closed on Monday and priced before the start of trading yesterday, attracted good demand from top-tier institutions and was covered in just two hours, partly with support of an unidentified anchor investor which bought about one-third of the deal.

However, investors were clearly not willing to pay just anything for a slice of the private-sector lender and the price was fixed at the bottom of the offered range for the maximum 6.6% discount -- a wide margin for India where follow-on share issues have to adhere to minimum floor prices which are typically very close to the market price, leaving room for just a token discount of 1%-3%.

The deal comprised 37.3 million shares that were offered at a price between Rs263 and Rs270, or at a discount of 4.1% to 6.6% versus Monday's closing price of Rs281.65. Yes Bank's share price has been edging gradually higher from a 2010 low in late February, although with a lot of breathers along the way. Monday's closing price was just 6.3% below the record high of Rs299.50 that it reached on June 4.  

Part of the attraction of the transaction, especially for large funds, was that it will increase the free-float, which should improve liquidity. Yes Bank has a market capitalisation of about $2 billion, but until now, the free-float has been only about 57%, or $1.16 billion, based on yesterday's closing price. That will now increase to 68%.

According to a source, the deal was multiple times covered with orders from close to 40 investors. Approximately 83% of the deal was placed with tier-1 long-only investors. Existing shareholders were well represented in the transaction, but there was also good participation by new names. Indian and Asia-based investors accounted for the majority of the demand, or 42% and 40% respectively, the source said. European investors accounted for 4% and US funds for 14%.

Supposedly there was enough demand for the deal to be upsized and for Rabobank to sell its entire 15.9% stake, but the Dutch bank declined, suggesting that it may still want to keep the 4.9% for the long-term. Rabobank was one of the initial investors in Yes Bank when it was founded in 2004.

"We are a strong supporter of Yes Bank and its entrepreneurial management team, who have successfully established the bank as one of India's most successful and fastest-growing full-service providers," Sipko Schat, a member of Rabobank's executive board said in a press release. "We remain confident in the future prospects of Yes Bank and are retaining a 4.9% stake in the bank," he added.

As a result of the divestment, Schat will step down from the board of Yes Bank.

Aside from its minority stake in Yes Bank, Rabobank has been present in India since 1998 through a wholly-owned non-bank finance company named Rabo India Finance. The unit focuses primarily on food and agribusiness, providing advice on how to improve efficiency in the agricultural chain. These sectors are also specialties of Rabobank as a whole.

Once it gets its banking unit up and running, it is also planning to expand into other sustainable sectors like renewable energy and clean technology. Rabobank said in a separate statement on its website yesterday that it has sought all the necessary regulatory approvals to set up a bank in India.

Rabobank has also made headlines lately after agreeing to establish a strategic partnership with Agricultural Bank of China (ABC), ahead of the Chinese lender's initial public offering, which is expected to raise more than $22 billion. According to sources, Rabobank will also participate in the IPO as a cornerstone investor.

According to a memorandum of understanding signed on June 4, Rabobank will provide technical support, training and expertise to strengthen ABC's capabilities, especially in trade finance, leasing, rural banking and risk management. The strategic partnership will also provide Rabobank with an opportunity to strengthen its position in China.

ABC will start taking orders from international investors for the Hong Kong H-share tranche tomorrow.

Yes Bank's share price fell when Indian trading opened yesterday and finished the session 3.5% lower at Rs271.85. However, that was 3.4% above the placement price, which must be viewed as a positive outcome, especially since the benchmark Bombay Sensex index fell 0.7%. 

¬ Haymarket Media Limited. All rights reserved.