What if PayTM bought a stake in YES Bank?

Have you heard this fairy tale about the frog and the princess? Remember how a kiss by the princess magically transformed the frog into a handsome prince? Well, something like this still happens in today’s industrial world. You must be thinking how? This is what acquisitions look like.
Although fairy tales in the earlier times were more believable, today's tales have the same essence but a different form. The frog is the company waiting to be acquired, and the spoilt princess is the company aiming to acquire another company and find some benefit from it.

Does it strike a chord now? Let’s think about YES Bank and PayTM. If it still doesn’t make sense to you, I will help you connect the dots. YES Bank is the distressed frog wanting to be transformed and wants to sell its stake to PayTM who is like the princess which targets to buy that stake in the company.

September saw a turn of events for YES Bank after it reached the lowest point in its tenure of business. After being downgraded by the rating agencies and settling up with SEBI regarding some discrepancies, YES Bank has been trying to clear its book debts and is attempting to raise more growth fund.

What is the new development?

The co-founder of YES Bank, Mr. Rana Kapoor, proposed to sell his stake in the Bank to PayTM in August. YES Bank has been facing illiquidity issues and needed to clean up the defaulter list at the earliest. According to reports, Mr. Rana Kapoor sought out to Mr. Vijay Shankar Sharma, the CEO of PayTM and offered his stake along with his family members' stake for about Rs. 1800 crores to Rs 2000 crores.

The worth of the shareholding of Rana Kapoor and his family members is almost Rs. 1550 crores, which is nearly 9.64% stake in the Bank. This deal will require the approval of the Reserve Bank of India.

Impact of this deal?

With almost 60% of the share prices falling in 2019 and nearly 80% in the last one year, YES Bank has been bearish in the markets. But, we have been seeing scope for recovery and an increase in share prices over the last week. Shares of Yes Bank soared as much as 13% to ₹71.30 on 11th September 2019 on the BSE owing to the news of the sale of a stake to One97 Communications Ltd, the parent company of Paytm and Paytm Payments Bank.

The stake sale will go up to 10% or above, and the RBI rules permit an individual to hold up to 15% of the shares in a company. The board of YES Bank has approved to raise $1.3 billion growth capital. The Bank also wants to bring in a surplus of $1-$1.2 billion through a preferential allotment. The Bank attempted to boost its flailing capital adequacy ratio by raising almost $275 million through qualified institutional placement (QIP) in August. According to a report by Mint, YES Bank plans to raise $600 million more from big investors.

Mr. Rana Kapoor's stake in the Bank is proposed to be sold as he seeks to reduce the personal debt and incorporate a fresh round of funding in the Bank to improve its capital position.

If the deal works out, it would be a first in the corporate world where a global fin-tech company will be buying a stake in a commercial bank. Generally, the opposite has been seen all this while. The year will also be marked as necessary for the banking industry as it will see the end of the illustrious career of Mr. Rana Kapoor as a banker and the landmark success in the career of Mr. Vishal Shekhar Sharma.

Read more on YES Bank and whether you are safe with YES Bank or not.