Is it worth to invest in Yes Bank FPO ?

Explainer: All you need to know about Yes Bank's FPO with EduMcStark

Q.1  What is FPO ?

Ans:  FPO (Follow on Public Offer) is a process by which a company, which is already listed on an exchange, issues new shares to the investors or the existing shareholders, usually the promoters. FPO is used by companies to diversify their equity base.

Q. 2 What is Difference between IPO & FPO ?

Ans: IPO is the first public issue of the shares of a private company that is going public whereas FPO is the second or subsequent public issue of the shares of an already listed public company.

Q. 3 Why is FPO issued ?

Ans: A follow-on public offer is also called further public offer. When a listed company comes out with a fresh issue of shares or makes an offer for sale to the public to raise funds it is known as FPO.

Q.4  Is FPO secondary market ?

Ans: Commonly referred to as a secondary market offering, there is no benefit to the company or current shareholders.

Q. 5 Is it good to invest in FPO ?

Ans: A FPO issued by a reputed company is an attractive avenue to invest as the company will have a proven track record and paperwork to show of its financial performance over along period. It also often leads to smaller investors getting a chance to invest in a company that we hitherto unaffordable for them.

Q. 6 Is it worth to invest in Yes Bank FPO ?

Ans: FPO price of YES Bank implies a huge dilution for existing investor as it has set floor price of ₹12 per share for FPO, half the current market price of the stock. While such a steep discount could appear attractive for new investors, it has led to a steep dilution in equity base for existing shareholders in the bank.

For the Rs 15,000 crore that YES Bank is looking to raise from the FPO, the price band would imply issuance of fresh shares of Rs 1,154-1,250 crore. Given that the existing number of outstanding shares in the bank is around Rs 1,255 crore, the FPO would imply a 50 per cent dilution in existing base.

 

Under the reconstruction scheme, SBI invested Rs 6,050 crore, while seven other lenders invested Rs 3,950 crore –

1. ICICI Bank (Rs 1,000 crore),
2. Axis Bank (Rs 600 crore),
3. Bandhan Bank (Rs 300 crore),
4. Federal Bank (Rs 300 crore),
5. Kotak Mahindra Bank (Rs 500 crore),
6. IDFC Bank (Rs 250 crore) and
7. HDFC Ltd (Rs 1,000 crore).

 

Currently, SBI holds 48 per cent in YES Bank,

1. ICICI Bank and HDFC Ltd (8 % each),
2. Axis Bank (4.8 %),
3. Kotak Bank (3.6 %),
4. Bandhan Bank (2.4 %),
5. Federal Bank (1.9 %) and
6. IDFC Bank (1.7 %).

Under the reconstruction scheme, SBI can hold a maximum of up to 49% in YES Bank, and  can not reduce its holding below 26% before completion of three years.

The FPO issue would mean a straight 50 per cent dilution for these existing shareholders in their equity holdings and 15 per cent dilution in book value (per share). Of course, this is assuming that they do not buy additional stake in the FPO offer.

However, the Executive Committee of the central board of SBI has approved a maximum investment of Rs 1,760 crore in the FPO. This would mean that SBI’s stake in the bank would come down from the current 48 per cent to about 30 per cent.

Roping in new investors through the FPO will lower the burden of existing lenders, including SBI, to pump in additional capital.

So, If you are planning to enter in Yes Bank FPO then it will be ok decision because you are going to buy stocks for the price lower than the prevailing Market Price. This Reconstruction plan may result in fall in current market price near 13-14 per share.