YES Bank investors SPGP Holdings, Erwin Braich confident of RBI nod, commit $3 billion investment

Yes Bank said on Friday it will raise $2 billion in a massive issue of new shares to institutional investors and wealth managers. Raising the finds is critical for its survival, but hinges on the Reserve Bank of India's approval to large investors like Hong Kong-based SPGP Holdings and Canadian family office of Erwin Singh Braich. The two investors have committed $1.2 billion out of the total recapitalization of $2 billion. London-based Citax Holdings has offered to invest $500 million in Yes Bank.

CNBC-TV18's Nisha Poddar talked to the two investors—less known in India—to find out more about their rationale for eyeing a stake in Yes Bank and their investment plans in India. Here are the edited excerpts of the interviews:

Somitra Agrawal, MD and CEO, SPGP Holding Hong Kong

Q: You have committed and proposed $1.2 billion of investments in Yes Bank, what is the reason and the rationale for your interest in this company?

A: Basically, we focus on investments with strong fundamentals. We have been interacting with Yes Bank for a few months and we feel that the bank – even though it is a young bank –still has very strong fundamentals. We see the bank growing more stronger after the round of investment.

Q: SPGP Holding and Erwin Braich Family Trust tied together to give this particular proposal. How do you divide the equity shareholding between the two and what is the source of funding and arrangement between the two partners?

A: The proposal that we have provided to Yes Bank is a joint proposal by SPGP Holdings and Erwin Braich. The final shareholding breakup probably will be formed up post we get all the approvals from the central bank.

The funds which are required for the investment with the bank have already been earmarked and very soon we will be transferring it into the formal escrow account with an international bank probably in Canada or in Hong Kong and post receipt of all the approvals, the funds will be formally remitted to the designated account of Yes Bank.

Q: I also wanted to understand what is the kind of funds that you have or assets under management (AUM) you have globally to be a credible player to buy into an Indian bank?

A: Globally, we currently manage more than assets in excess of about $15 billion, primarily our assets are located in Canada, North America and Asia, including parts of Japan. We have investments in Sri Lanka, we have investments in Thailand, the Philippines and in Australia.

Q: Any particular investments in India so far or is this going to be the first meaningful one for you?

A: This will be our first major investment, although we have committed nearly $3 billion of capital to various Indian project. Primarily these projects are related to oil and gas, liquefied natural gas (LNG), more related to downstream LNG assets, agriculture and financial services.

We have committed a substantial amount of investment in a company called Matix Fertilisers. It is a urea plant based on West Bengal and we have committed investments in Dighi Ports where we intend to set up six-eight million tonne LNG facilities post our investment.

Q: Recently, you had shown interest in Reid & Taylor and you decided against going ahead with it, there has been a lot of negative press around that, how would you clarify your position over there?

A: I cannot comment or control on the media reports but suddenly this reporting about Reid & Taylor has been a misconception or misinformation.

To tell you the background, we have $200 million corpus called the Black Pearl Investment Fund, which we are focussing for investment in branded retail in India. It is an India dedicated enterprise. We have already committed more than $100 million of investment in India in about six companies. Most of them will be coming out as a public announcement very soon.

As a part of this venture, we did look at Reid & Taylor when it was under the insolvency proceedings with the National Company Law Tribunal (NCLT). We had initially put in our expression of interest to see whether this is something which can fit into strategic thinking, however, based on a very initial due diligence, we figured out that there are too many statutory regulatory and financial issues related with the company. So we decided that we will not be able to take it forward beyond a point.

The court understood where we came from, the NCLT court, and they did offer us a position that if we want more time to do the due diligence, we can put in some deposit and then take more time to do the due diligence. By that time, my risk committee in my board had already decided that we will not be able to pursue that. So we could not accept the court’s offer and hence we withdrew it.

Q: Finding the source of fund was not the issue in Reid & Taylor as has been widely understood?

A: No. We were not comfortable with the way the company’s structure was presented to us. Our risk management team just couldn’t appreciate or just couldn’t take forward the various risks in that particular transaction.

Q: As far as Yes Bank investment is concerned, the CEO has mentioned that it could be around Rs 78 per share, which could be in line with the 26-week average Sebi formula. Are you in tune with this valuation and you are comfortable to invest at these levels?

A: Our term sheet does specify a valuation range and it is also subject to the prevailing regulations from Sebi as an investor. As a binding investor, we will definitely follow what is allowed under the regulations.

Q: I wanted to understand, is this purely financial in nature or are you looking at a strategic indent and what is the kind of control or board position that you have asked for by way of this investment?

A: We would certainly like to be a part of the whole growth strategy of the bank. We do bring in a certain level of expertise. Even though globally this is our first investment in a bank but we have been operating investment banks and fund management houses globally. So we do bring in some expertise in terms of the growth for the growth plan of the bank.

We would love to participate in the growth strategy but we would not go to that extent of having control over the bank or the control operations of the bank. We have very strong confidence in the current management of the bank. We would have certain positions at the board – that also depends on the regulators, how much they think we need to participate on the board. Whatever participation we have on the board, we will be active enough to provide our value adds globally to enable the bank to go to the next level.

Q: How confident are you of the fit and proper certificate from regulator RBI, which is so critical for your investment in Yes Bank?

A: For us also, this is a first-time investment in a bank in India. So the fit and proper concept as what the regulators want, we are submitting our documents. I hope the regulators and the whole market accepts or appreciates the efforts, which we are putting in to bring in good long-term capital into the country. So considering all that background, I hope everything is approved in accordance with the guidelines.


Srinivas Solaraj, executive chairman, Citax Holdings

Q: Your rationale for a big investment in an Indian bank—Yes Bank?

A: Within the financial services globally, an Indian private sector bank is the most compelling investment opportunity we have today. Yes Bank is very young and there is a good prospect for growth. With Yes Bank particularly, I think it got great products, people and technology and there is a huge opportunity for growth.

Q: Have you had any investments globally when it comes to the banking space and what is the kind of expertise that you can bring to the table on this?

A: We are currently starting as a passive investor, as a strategic investment. We are currently a small shareholder in a private bank in Switzerland and we plan to expand in the financial services space shortly. In fact for that matter, we are now currently in discussion to take an equity in an AIF - alternative investment finance and Gurudeo Yadwadkar, deputy managing director of IDBI, is going to be handling our India operations. Yadwadkar is a credible professional and we have identified an established team to head the financial services space in India.

Q: When we talk about your global footprint, what is the kind of fund that you have and the assets under management for Citax?

A: We have done fundraising exercise for the past 15 months, we have $3 billion, of that very substantial one is committed for an oil refinery in North Africa and probably one-third of that is going to be in the financial services space in India of that.

Q: Apart from that what are your top investments globally, I am just trying to gauge your expertise and in which sectors?

A: Our expertise is in the oil and gas side and we have a commitment of close to $2.5 billion in North African refinery space, it is in the final stages, we are waiting for court, it is in the bankruptcy process. Court has given a principle approval, we have just completed compulsory due diligence. In the next 45 days, we will be completing the takeover.

Q: You said that you have just finished raising one particular fund and a large part of that could also come into India, but overall when I look at your entire assets under management so far how much do you have globally presently?

A: Right now currently under management is $1.3 billion.

Q: You said largely in the oil and gas space. When we talk about Yes Bank, the CEO has communicated that the deal could be done at a price of Rs 78 per share, which is as per the Sebi formula of six month’s average. Would you be comfortable with this valuation? Is that the price which you have been discussing with the bank?

A: I guess we have no room as pricing is determined by Sebi regulation and I guess all the investors will have to abide by that if my understanding is correct.

Q: Since this is a private bank, the RBI takes the final call on who invests in which bank and 'Fit and Proper' certificate has to be really sought and taken by the investors and the bank as well. Now, how confident are you of getting the RBI’s 'Fit and Proper' certificate for your investment in Yes Bank?

A: I don’t think we will have any issues in that, the reason is we have been approved by regulators in the EU when I say that I personally started my financial services career as a hedge fund trader in Switzerland and we are also a shareholder in regulated banks currently. I don’t think we will have any issue in getting approval through RBI of 'Fit and Proper'.

Q: When we talk about the overall agreement with the bank is it binding in nature when it comes to your term sheet with the bank and under what circumstances can you pull out of this transaction and at what cost?

A: As of today, the commitment is binding. We have no intention to pull out. The reason is that we have taken a consolidated decision in past two years looking at the market space in India I don’t think we will pull out subject to regulatory approval, we are committed to Indian financial services by now.

Q: What are the type of investors that you tap for your fund?

A: As of today we have raised capital of $3 billion from ultra-high net worth investors from Switzerland and Germany. The reason is, as you are aware, the return on capital in Europe is negative today, they are looking at developing and emerging market sectors. So we have done our fundraising exercise in 15 months and we have been successful in raising the capital. We have committed the capital of the first round of $3 billion as of today.

Source - CNBC TV18

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