How YES Bank shares give windfall gains to marquee investors

PALAK SHAH Mumbai | Updated on March 17, 2020 Published on March 17, 2020

As stock price soars, the 25% of shares that can be liquidated more than cover the cost of 75% that is locked in

An investment in YES Bank is already giving windfall gains to a few high networth individuals (HNIs) and institutions that were allotted shares under the bank’s recently announced restructuring scheme.

A handful of investors were allotted YES Bank shares at ₹10 apiece on the condition that 75 per cent of their holding would be locked in for three years. But, thanks to the whopping rise in the bank’s share price since the implementation of the scheme, selling just 25 per cent of their holding at the market rate would result in making the balance 75 per cent cost-free for these investors.

Last Friday, the government published a gazette notification which said: “There shall be a lock-in period of three years from the commencement of this (YES Bank restructuring) scheme to the extent of 75 per cent in respect of a) shares held by existing shareholders and b) shares allotted to the investors under this scheme.”

Supply scarcity

Such a dictate by the government, and subsequent freeze on the selling of 75 per cent holding for existing shareholders, created a supply scarcity in the YES Bank counter. What added to the buying panic was Moody’s upgrade of YES Bank and stock exchanges’ move to advance the date of removal of the scrip from derivatives to March 19 from March 27, which led to a short-squeeze in the futures and options segment.

The share price of YES Bank, which had touched a low of ₹5.55 on March 6, sparking a selling panic and rollout of the preferential allotment scheme, touched a high of ₹64 on Tuesday. This presents a stupendous six-time gain to those who got a preferential allotment at ₹10 apiece.

“Do the math. If one got a preferential allotment of 100 shares at ₹10 per share the total acquisition price is ₹1,000,” said a research head at one of Mumbai’s oldest brokerage houses. “At the current market price of ₹60 if these acquirers sell just 25 shares, which they are allowed to, they make ₹1,500. Their 75 per cent acquisition of YES Bank shares is totally cost-free. Moreover, since YES Bank is being removed from derivatives, the fall is share price from the current levels will be limited as one cannot short it. Moody’s upgrade and positive commentary by the RBI on YES Bank, coupled with a scarcity of supply, will keep the share price up.”

RK Damani, Rakesh Jhunjhunwala and the Azim Premji Trust are among the big non-institutional investors in YES Bank under the government’s restructuring scheme. State Bank of India, HDFC, ICICI Bank, Axis Bank and Kotak Mahindra Bank are among the institutional investors.

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Published on March 17, 2020
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