MUMBAI: Japanese financial giant Mizuho plans to exit the race for a significant stake in Yes Bank, leaving Sumitomo Mitsui Banking Corporation (SMBC) and Emirates NBD as the two serious contenders in the fray, said people with knowledge of the matter.
India’s sixth-largest private bank by assets is seeking a new owner four years following a turnaround after a central bank-orchestrated rescue. The top leadership of the Japanese bank took the decision to opt out in recent days, said the people cited above. Yes Bank has a market value of Rs 73,020.67 crore. A 51% stake sale would make it India’s largest banking sector M&A.
SBI denied it’s selling its stake in Yes Bank.
“We reserve our comments to queries that are speculative in nature,” a Yes Bank spokesperson told ET. SMBC declined to comment. Mizuho’s India representatives and Emirates NBD spokespersons in Abu Dhabi did not respond to queries.
According to the people cited, Mizuho wanted to make a financial investment and acquire 20-24% stake in the bank with no board representation. It also did not want to trigger any open offer to buy an additional 26% of the bank. The management may have developed cold feet after seeing foreign direct investment (FDI) from Japan in the financial sector getting stuck.
Negotiations between Bank of Tokyo-Mitsubishi UFJ (MUFG), Japan’s largest financial institution, and HDFC Bank for a near $2 billion investment in HDB Financial Services at a $9-10 billion valuation are said to be stuck. HDB Financial Services, the non-banking arm of the private lender, is headed for an IPO. MUFG was also tapped for Yes Bank, but the institution chose not to engage after initial discussions. MUFG’s proposed investment in HDB was billed as the largest FDI in financial services in India.
While US banks are pulling back from India, European ones don’t have the capital to invest, said an executive. The Centre isn’t keen on Chinese involvement, which leaves Japan and West Asia, with the former having deeper roots and wider institutional presence in India over the past decade, the person said.
“It’s obvious that Japan Inc. will see this (HDB-MUFG) as a lack of determination or assistance from the government to ensure large FDI from Japan is welcome,” the person said. “There isn’t an existing large Japanese ecosystem in India like other countries in Asean, so even a solitary case gets disproportionate attention and sets the narrative.”
Sluggish growth in Japan has led some of its biggest lenders and financial services groups to seek inorganic growth opportunities across Asia. Arab banks have also been looking to widen their India footprint but they may be more keen on smaller bets led by their cash-rich sovereign wealth funds, analysts said. Banks in the Gulf were also tapped for the IDBI Bank stake sale.
The Reserve Bank of India (RBI) is said to have relaxed the ownership guidelines for Yes Bank, allowing the purchase of a controlling stake of 51% and above by a single buyer that has to be lowered over five years to 26%. Alternatively, RBI has been willing to consider the wholly owned subsidiary (WOS) route to give Yes Bank’s suitors a controlling economic interest.
The current FDI norms permit aggregate foreign participation in Indian private banks up to 74%, with the holding of each entity capped at 15%. The FDI rules also do not permit a single foreign bank to take a controlling stake in an Indian bank.
In the past, RBI has made exceptions in some instances, including Prem Watsa’s Fairfax acquiring a 51% stake in ailing Catholic Syrian Bank in 2018.
Voting rights are capped at 26% but the regulator is flexible on workarounds or even amendments to sweeten the offer for Yes Bank, provided the candidate qualifies under RBI’s fit and proper criteria. However, the discussions with the RBI over the voting rights issue is still underway, said the people cited above. SMBC and NBD are continuing their due diligence.
Currently State Bank of India (SBI) is the single largest shareholder in Yes with a 23.99% stake and has been seeking an exit. Other domestic banks and financial institutions such as HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank and Life Insurance Corp of India together own 11.34%. Two private equity funds Advent International and Carlyle owned 6.94% and 9.20%, respectively, as of June. Other than SBI, it’s still not clear if the others will also exit immediately.
Citi was mandated to find a new investor for Yes Bank earlier in the year.
Yes Bank chief executive Prashant Kumar was cited as saying in ET on July 29 that the lender has been working to provide an exit for shareholders, including SBI, although the latter has denied that it’s looking to exit.
“Banks led by SBI had come in to support the reconstruction scheme. As per regulations, banks cannot remain invested in other banks,” Kumar had told ET. “At some point, we need to provide an exit to our shareholders, especially SBI.”
With a successful transaction with JC Flowers ARC that had purchased a pool of NPA assets worth Rs 48,000 crore from the lender, resolution of nearly 50% of security receipts of Yes Bank was possible helping in the turnaround. The private bank’s total deposits also grew to Rs 2.6 lakh crore, recording a growth of 20.8% on year and profits and net interest margin (NIMs) too have seen a recovery, post the change in ownership.”
