By Siddhi Nayak
MUMBAI (Reuters) -India’s Yes Bank expects Japan’s Sumitomo Mitsui Banking Corp (SMBC) to maintain at least 20% stake in the lender but said that regulatory requirements may be keeping it from raising shareholding significantly beyond that, the bank’s chief executive said.
SMBC on Friday said it had signed a definitive agreement to take a 20% stake in Mumbai-based Yes Bank, a deal that marks the largest cross-border merger and acquisition deal in India’s financial sector.
SMBC, is a unit of Sumitomo Mitsui Financial Group and is Japan’s second-biggest bank.
“For potential capital raises in the future, SMBC would be contributing,” Yes Bank’s CEO Prashant Kumar told Reuters in an interview on Thursday.
“It also means they (SMBC) would not like to get their stake below 20%.”
As part of the deal, SBI will acquire a 13.19% stake from State Bank of India, also its largest investor, and an aggregate of 6.81% from other banks that had rescued it as a result of the regulator-led restructuring in March 2020.
SMBC’s stake buy stopped short of the 25% shareholding, which under Indian regulations triggers an open offer for another 26% from public shareholders at the same price offered to a strategic investor.
The “logical” reason why SMBC did not take a higher stake in Yes Bank was probably to avoid triggering an open offer of shares, and being classified as a promoter, which carries significant regulatory obligations, Kumar said.
Large shareholders with control over a company’s operations are termed as “promoters” under Indian regulations and being categorised as one carries tougher reporting requirements.
Kumar expects the regulatory approvals for the deal to come in by September.
The transaction is subject to regulatory approvals from the Reserve Bank of India, Competition Commission of India and shareholders of the Bank.
Shares of Yes Bank have risen 7.5% since the announcement of the deal and, on Wednesday, Moody’s Ratings said that SMBC’s stake acquisition is credit positive for the Indian lender.
A re-rating, if it happens, will open doors raising funds at a cheaper cost and also expand lending opportunities, Kumar said.
SMBC’s focus on large corporate customers will also help the bank expand in areas like transaction banking, he said.
Yes Bank, however, will remain focused on retail lending primarily, which formed 41.2% of its loan book as on March-end.
“I don’t think the retail-corporate mix, will change post the deal; we would be more focused towards retail,” Kumar said.
(Reporting by Siddhi Nayak, editing by David Evans)
