This Japanese lender's chief is visiting India to discuss buying Yes Bank stake

The chief of one of Japan’s largest lenders is visiting India this week to discuss buying a stake in Yes Bank Ltd, as a global race heats up to grab a significant holding in the private lender.

Sumitomo Mitsui Banking Corporation’s (SMBC) global chief executive officer Akihiro Fukutome will be meeting with officials of the Reserve Bank of India and State Bank of India to discuss buying a stake in Yes Bank, according to four persons aware of the matter.

SMBC is looking at a valuation of about $5 billion for a 51% stake in Yes Bank, according to one of the persons cited above. As of Monday’s close, Yes Bank’s market capitalisation was ₹76,531 crore, or about $9.1 billion.

“SMBC has already started due diligence, seeking details from Yes Bank. The global CEO is meeting with senior officials of RBI and SBI early this week to discuss the stake sale plan," said this person.

State-owned SBI, which owns a 23.99% stake in Yes Bank, has been looking to pare its holding in the private lender ever since a three-year lock-in period barring investors from selling shares expired last year. SBI had initially acquired a 49% stake in Yes Bank as part of a 2020 government-engineered rescue.

Also read | Four years since Yes Bank’s rescue, RBI greenlights an exit plan for its saviours

“RBI is keen to see a global bank pick up a stake in Yes bank," said a second person. The central bank is yet to give its clearance on the ‘fit-and-proper’ assessment of the new investor. 

Mint reported on 9 July that RBI had approved the sale of up to a 51% stake in Yes Bank, the second such instance of the regulator allowing an investor to hold more than a 26% stake in an Indian bank. 

In 2018, RBI allowed Canada’s Fairfax Holdings Ltd to acquire a 51% stake in Kerala-based Catholic Syrian Bank, making the Prem Watsa-owned company the first foreign investor to gain majority ownership in an Indian bank.

Sumitomo Mitsui Banking has appointed JPMorgan as its financial adviser for the proposed stake acquisition in Yes Bank, and J Sagar Associates as its legal adviser, according to a third person.

“The Japanese will engage directly with the central bank and SBI officials. This is what even the bankers have advised them," this person said.

Yes Bank has appointed Citigroup to shortlist suitable promoters.

Also read | Wanted: A new owner for Yes Bank

“As stated earlier as well and also clarified to stock exchanges, we have no comments to offer regarding stake sale as these inquiries are speculative in nature," a spokesperson for Yes Bank said in reply to Mint’s queries.

JPMorgan and JSA declined to comment. SMBC, SBI and RBI didn’t immediately reply to Mint’s emails.

An exit for Yes Bank’s rescuers

Besides SMBC, Japan’s Mizuho Bank and Emirates NBD were also reported to be in the running to acquire a stake in Yes Bank.

On 8 August, The Economic Times reported that Mizuho had exited the race as it wanted to make a financial investment and acquire a 20-24% stake in Yes Bank with no board representation. 

It also did not want to trigger any open offer to buy an additional 26% stake in the bank, required under Indian law on acquiring a significant holding in a listed company.

Apart from such concerns, prospective investors in Yes Bank are also expected to seek clarity on a court case pertaining to a write-down of the bank’s additional Tier-1 bonds worth ₹8,415 crore.

In March 2020, the private lender had written off AT-1 bonds as part of its reconstruction scheme. Subsequently, Yes Bank’s AT-1 retail bondholders moved the Bombay High Court challenging the lender’s decision to write off these bonds and reclaim their money.

Also read | The Yes Bank court ruling undermines the concept of loss-absorbing AT-1 bonds

The court in January last year ruled in their favour. Yes Bank, RBI, and the government have filed their appeals in the Supreme Court; the matter is awaiting a final hearing.

“While the AT1 bond issue is sub-judice, the matter could have a bearing on the valuation of the deal," said a legal expert on condition of anonymity. “Investors could take a conservative view on the outcome even as RBI and Yes Bank have filed appeals, and this may influence the pricing of the deal."

RBI’s decision to allow a strategic investor in Yes Bank opened up an exit path for SBI and other lenders that jointly own 33.74% of Yes Bank, which has assets worth over ₹4 trillion.

Also read | Yes Bank’s turnaround: Prashant Kumar has a new mission

SBI holds 23.99% in Yes Bank, HDFC Bank Ltd 2.75%, ICICI Bank Ltd 2.39%, Kotak Mahindra Bank Ltd 1.21%, and Axis Bank Ltd 1.01%. Life Insurance Corporation of India Ltd owns 3.98%, while CA Basque Investments holds 8.74% and Verventa Holdings Ltd 9.21% in Yes Bank.

Yes Bank ended Monday’s trading on NSE at ₹24.62 per share, up 2.84%.

Sumitomo ‘s India aspirations

Sumitomo Mitsui Financial Group (SMFG) is the holding company of one of the largest global banking and financial service groups from Japan, offering commercial banking, leasing, securities and consumer finance. SMFG’s total assets stood at ₹162 trillion with a net profit of ₹44,900 crore as on 31 March.

The conglomerate, with a legacy of four centuries in Japan, has been growing its presence in India over the last few years. Besides SMBC, SMFG also owns non-banking finance company SMICC and SMFG India Home Finance Co. Ltd (SMHFC) in India.

SMBC, which began its India operations in 2013, operates across three branches in New Delhi, Mumbai and Chennai. It has obtained approval to open a branch in the Gujarat International Finance Tec-City (GIFT City). Its India offices are supported by an offshore team in Singapore to extend funding support to Indian companies.

Also read | Japanese companies looking for policy stability in India: Sumitomo chairman

In November 2021, SMFG acquired a 74.9% stake in the non-banking finance company SMFG India Credit Company (SMICC) from Fullerton Financial Holdings.

SMFG completed the acquisition of the remaining 25.1% stake on 6 March, making SMICC a wholly owned subsidiary. SMICC’s consolidated assets under management stood at ₹45,441 crore as on 31 March. It reported a net profit of ₹670 crore for the March quarter.

“Japanese investors have a deep understanding of the Indian markets, with successful examples like Maruti Suzuki and Escorts Kubota, showcasing the strong management and growth potential under Japanese stewardship," said Asutosh Mishra, head-research, institutional equities, Ashika Stock Broking.

“RBI’s strategic approach to allowing select global banks to participate in India creates a mutually beneficial scenario," Mishra added. “At the same time, as Japanese banks consider acquiring private sector banks in India, a realignment of their strategies may be necessary to fully capitalize on the opportunities in this dynamic market."