YES BANK Share price

Our HistoryRBI by its circular dated January 3 2001 issued guidelines forawarding licenses to new banks in the private sector that stipulatedthe terms and conditions of the licensing process and the procedure formaking applications. Further the circular also stated that in view ofthe increasing emphasis on stringent prudential norms transparencydisclosure requirements and modern technology new banks would need tohave strength and efficiency to work profitably in a highly competitiveenvironment. In addition as a number of banks were alreadyfunctioning licenses could be issued on a very selective basis only tothose applicants who could conform to the requirements of the circularand who would conform to the best international and domestic standardsof customer service and efficiency.The applications were initially screened by RBI to ensure prima facieeligibility. Thereafter the applications were referred to a high-levelAdvisory Committee set up by RBI comprising:* Dr. I.G. Patel former Governor of RBI;* C.G. Somiah former Comptroller and Auditor General of India; and* Dipankar Basu former Chairman of State Bank of India.The Chief General Manager of the Department of Banking Operations andDevelopment of RBI was the Secretary of the Advisory Committee.In accordance with the circular on entry of new private sector banksan application was made on March 30 2001 by the Promoters and Mr.Harkirat Singh to RBI for a license to commence commercial bankingbusiness in terms of Section 22 (1) of the Banking Regulation Act1949. The application also included a letter of intent from RabobankInternational Holding. The application to the RBI for the grant of alicense to set up a new private sector bank in India named `RabobankInternational Holding' as a co-promoter of the proposed bank. Theapplication contained full details of the credentials and track recordof the Promoters Mr. Harkirat Singh and Rabobank InternationalHolding proposed management structure the business financial planand strategy of the proposed bank. Further the application wassupported by a letter from the chairman of the managing board ofRabobank International Holding stating that it would give thePromoters and Mr. Harkirat Singh its fullest support in the successfulincorporation of the proposed bank.On February 7 2002 RBI granted an `In Principle' approval toestablish a new bank in the private sector under Section 22 (1) of theBanking Regulation Act which approval was valid for a period of oneyear. The `In Principle' approval required that the new banking companybe incorporated with Memorandum and Articles of Association and wouldbe required to mobilize an initial minimum paid up capital of Rs. 2000million.The press release issued by RBI at the stage of the grant of the "InPrinciple" approval stated that Mr. Ashok Kapur and two other bankingprofessionals (Mr. Rana Kapoor and Mr. Harkirat Singh) with RabobankInternational Holding have applied for a license. Further the pressrelease stated that the high level committee has recommended theapplications of Mr. Ashok Kapur and two other banking professionals(Mr. Rana Kapoor and Mr. Harkirat Singh} with Rabobank InternationalHolding have been found suitable for setting up a new bank in theprivate sector.In February 4 2003 an application was made to RBI for an extension tothe 'In Principle' approval in order to enable us to recruit key seniormanagement staff to develop policies and procedures finalizeinformation technology platforms and to select premises for corporateand regional offices. RBI by its letter dated February 252003extended the `In Principle' approval for a further period of six monthsuntil August 6 2003 within which time the Bank was required tocomplete all formalities for commencing banking operations.Subsequently Mr. Harkirat Singh did not remain with the project.However the Promoters and Rabobank international Holding confirmedtheir respective decisions to participate in the new private sectorbank by their letters to RBI dated April 28 2003 and June 18 2003respectively. Pursuant to the shortfall in the initial paid-up capitaldue to Mr. Harkirat Singh's withdrawal Rabobank International Holdingagreed to provide a loan to the Promoters and the Promoter Grouptowards the shortfall in the initial paid-up capital.In order to complete all formalities for commencing banking operationssuch as financial closure and human resource recruitment the Promoterssought another extension to the `In Principle' approval by their letterto RBI dated July 25 2003.RBI by their letter dated August 6 2003 further extended the `InPrinciple' approval up to November 30 2003 to enable the Bank tofinalise the financial arrangements to complete the equityparticipation.Yes Bank was incorporated as a Public Limited Company on November 212003. Subsequently on December 11 2003 RBI was informed of theparticipation of three private equity investors namely {CiticorpInternational Finance Corporation ChrysCapital II LLC and AIF CapitalInc.) to achieve the financial closure of the Bank. RBI by theirletter dated February 26 2004 provided their no-objection to theparticipation of the three private equity investors namely CiticorpInternational Finance Corporation ChrysCapital II LLC and AIF CapitalInc. in the equity of the Bank at 10% 75% and 7.5% respectively andalso advised the Bank to infuse a sum of Rs. 2000 million as the paidup capital. Additionally the RBI advised the Bank to submit anapplication for final approval after completion of all formalities forincorporation as a banking company and setting out the capitalstructure of the Bank as approved by RBI.RBI by their letter dated December 292003 decided to further extending`In Principle' approval for a period up to February 29 2004 to allowthe Bank to complete all financial arrangements.Yes Bank obtained its certificate of Commencement of Business onJanuary 21 2004. Subsequently in March 2004 the Bank achieved themobilization of the initial minimum paid up capital of Rs. 2000million. Further the Promoters by their letter dated March 29 2004made a final application for a banking licence under Section 22 (1) ofthe Banking Regulation Act 1949 providing complete details of thecapital structure the composition of Board of Directors the proposedhuman resources information technology premises and legal-policiesand the business and financial plan of the Bank.RBI by their letter dated May 24 2004 under Section 22 (1) of theBanking Regulation Act 1949 granted us the licence to commencebanking operations in India on certain terms and conditions including aterm that 49.0% of our pre-Issue share capital held by the Promoters(domestic and foreign) was to be locked-in for five years from thelicensing of the Bank being May 242004. In our case this 49.0% hasbeen met by locking-in Equity Shares representing 29.0% of the sharecapital held by Mr. Rana Kapoor and Mr. Ashok Kapur and Equity Sharesrepresenting 20.0% of the share capital held by Rabobank InternationalHolding. See Note 2 in the section titled "Capital Structure-PromoterContribution and Lock-In" on page 13 of this Red Herring Prospectus.Further the terms of the banking license granted to us by RBI requirethat the promoter holding in excess of 49% shall be diluted after oneyear of the Bank's operation. It is also stipulated that the paid upcapital (which currently stands at 2000 million) must be raised toRs. 3000 million within three years of commencement of business.Further by their letter dated September 2 2004 RBI included the Bankin the Second Schedule of the RBI Act 1934 with effect from August 212004 and a corresponding notification was published in the OfficialGazette of India (PART III-Section 4) on August 16 2004.Share SubscriptionThe Promoters the Promoter Group Companies and Rabobank InternationalHolding executed a Share Subscription Agreement dated November 5 2003(the "SSA") whereby they agreed to subscribe to the Equity Sharesalong with the Private Equity Investors (with whom a separate agreementwas to be executed).Under the terms of the SSA the Promoters have represented that asubstantial part of the consideration received by them from the sale oftheir shares in Rabo India would be applied towards the subscription ofthe Equity Shares. Further in terms of the SSA the Promoters havealso represented not to transfer their shareholding in Mags or Morganrespectively until the loans taken by Mags and Morgan from RabobankInternational Holding for the purpose of the purchase of the EquityShares have been repaid.The SSA provides that we shall have a Board consisting of a minimum ofthree and a maximum of 15 directors. So long as any of the parties tothe SSA hold at least 10.0% of the equity share capital the Promotersand Doit as shareholders have the fight to nominate three independentdirectors on the Board in addition to Mr. Ashok Kapur being thenon-executive Chairman of the Bank and Mr. Rana Kapoor being theManaging Director and Chief Executive Officer of the Bank. RabobankInternational Holding also has the right to nominate one non-rotationaldirector on the Board The SSA provides that the Promoters and Doitand Rabobank International Holding are not permitted to transfer theirlocked-in shareholding in the Bank for a period of five years from March10 2004. Under the terms of the SSA locked-in shares refer to40 million Equity Shares.Foreign Currency LoansThe subscription of the Equity Shares by Mags and Morgan was financedthrough a loan of Rs. 170 million availed by each of the companies fromRabobank International Holding which is documented through Dollar LoanAgreements between (i) Rabobank International Holding Mags and Mr.Ashok Kapur and (ii) Rabobank International Holding Mr. Rana Kapoorand Morgan both dated November 5 2003.In terms of these agreements Rabobank International Holding hasgranted a loan of Rs. 170 million each to Mags and Morgan to beutilised for subscribing to the 17 million Equity Shares of the Bank asprovided in the SSA.This loan has to be repaid within three years ofthe disbursement of the loan amounts. These loans were disbursed onMarch 10 2004. The SSA states that the loans to Mags and Morgan byRabobank International Holdings are to be at an interest rate of nil(0%).Mags and Morgan as security for the loan amount have each executeddemand promissory notes in favour of Rabobank International Holding.Further the Promoters executed personal guarantees and demandpromissory notes as security for loans to Mags and Morgan.The aforesaid loan agreements provide that the Promoters shall notdispose of their shareholding in Mags and Morgan respectively duringthe tenure of the loan. Further Mags and Morgan have undertaken thatthey shall not dispose of the Equity Shares during the tenure of theloan. The Promoters along with Mags and Morgan have agreed that theyshall cause us to issue such share certificates in .respect of EquityShares to Mags and Morgan that state that the transfer of the shareswithout the consent of Rabobank International Holding will be invalid.In the event that the Equity Shares are held in dematerialised form itis required that an agreement giving effect to this clause is enteredinto with the concerned depository.In the event of a default under the aforesaid agreements RabobankInternational Holding has a right to purchase such number of sharesthat are obtained by dividing the outstanding amount under theagreements by the fair-market value of the shares as on the date ofsuch breach that are held by Mr. Ashok Kapur in Mags and Mr. RanaKapoor in Morgan respectively at nil consideration. In addition asconsideration for the amounts due under the loan agreement in theevent of a default under the aforesaid loan agreements RabobankInternational Holding also has the right to purchase the Equity Sharesheld by Mags and Morgan with the number of Equity Shares beingdetermined according to the fair market value.The shareholders of Mags and Morgan have executed separate PromoterSupport Agreements dated November 5 2003 with Rabobank InternationalHolding to govern their relationship with Rabobank InternationalHolding whereby Mags and Morgan have authorised Mr. Ashok Kapur andMr. Rana Kapoor respectively to enter into and execute the abovementioned loan agreements on their behalf. They have also undertaken toensure that by exercise of their voting rights as shareholders of Magsand Morgan all obligations of Mags Morgan Mr. Ashok Kapur and Mr.Rana Kapoor under the aforesaid loan agreements shall be fulfilled. Fordetails of the shareholders of Doit see the section titled "OurPromoters" on page 98 of this Red Herring Prospectus. For details ofthe shareholders of Mags and Morgan see the section titled "OurPromoters-Companies Promoted by the Promoter Group" on page 98 of thisRed Herring Prospectus.In response to correspondence from the Bank providing details of theloan agreements RBI through its letter dated August 6 2003 permittedthe loans and advised that the loans availed from RabobankInternational Holding should not be secured against the shares of theCompany. Subsequently the Bank had by its letter dated March 5 2004intimated RBI of the draw down of the loans in accordance with theterms of the RBI letter dated August 6 2003.RBI by its letter dated May 22 2004 advised that the loan agreementsbe filed with the RBI. The RBI also advised that these loans shouldhave a minimum average maturity of 3 years and that Mags and Morganwould be required to submit monthly returns to RBI.The loan agreements have been filed with the RBI and the RBI hasthrough letters dated June 23 2004 and June 24 2004 allotted loanregistration numbers to these loan agreements.Further the RBI license dated May 24 2004 stated that the promotersshould abide with the conditions governing the loan as stated by theRBI in their above mentioned letters.Mags and Morgan have been regularly submitting the requisite returns toRBI in compliance with the requirements of the RBI letter dated May 222004.Investment by the Private Equity InvestorsPursuant to the SSA our Promoters entered into a Master InvestmentAgreement dated November 25 2003 with Mags Morgan Doit and thePrivate Equity Investors (the "MIA") pursuant to which the PrivateEquity Investors agreed to subscribe to their Equity Sharessimultaneous to the subscription by our Promoters and the PromoterGroup Companies to their Equity Shares. Additionally Mr. AshokKapur and Doit are permitted to transfer shareholding representing up to1.5% to key management personnel of the Bank.In terms of the MIA post the allotment of Equity Shares to ourPromoters our Promoter Group Companies and the Private EquityInvestors we are required to allot 6 million Equity Sharesconstituting 3.0% of our equity shares capital to senior managerialpersonnel and executives of the Bank. The MIA also reiterates theprovisions of the SSA in relation to our Board and further providesthat each of the Private Equity Investors shall be entitled to nominateone non-executive rotational director on the Board who will beeligible for reappointment; and that within 12 months of the date ofcompletion not less than half the Board is required to be comprised ofindependent directors. The directors nominated by the Private EquityInvestors are also entitled to be members of any committee orsub-committee of the Board.The MIA provides that 21 days' notice of each Board meeting is requiredto be given to each Private Equity Investor and the agenda for themeeting is required to be circulated 10 days prior to the meeting. TheMIA lists out certain items that can be discussed only if the same arestated in the agenda to the Board meeting such as filing forbankruptcy or winding up change in capital structure mergeramalgamation or consolidation modification of the any of our charterdocuments and the appointment and removal of directors. The presenceof half the number of the Board present for the entire duration of themeeting is necessary to constitute a quorum for the meeting unless thesame is with the consent of the Private Equity Investors.In terms of the MIA all parties subscribing to the Equity Shares priorto or simultaneously with the Private Equity Investors are prohibitedfrom transferring their Equity Shares for a period of three years fromthe date of completion i.e. March 10 2004. However the MIA alsoprescribes the following exceptions to the aforesaid lock-in: (i) wherewe suffer a loss of reputation; (ii) where the Private Equity Investorsare required by law to liquidate their shareholding in us; (iii) wherethere is a reduction in either the period of lock-in or in the numberof Equity Shares by RBI in relation to the five-year statutorylock-in imposed on the shareholding of Rabobank International Holdingthe Private Equity Investors would be entitled to transfer their EquityShares on a pro-rata basis or if there is reduction in the lock-inperiod by RBI in respect of the Equity Shares held by RabobankInternational Holding to less than 36 months from the date ofcompletion then the restriction on the transfer of Equity Shares bythe Private Equity Investors shall be in force for such reduced periodof time; iv) where our Promoters or the Promoter Group Companies arerequired to sell their Equity Shares for the repayment of the loanfacility availed by Mags and Morgan from Rabobank InternationalHolding; (v) the sale of three million Equity Shares by our Promotersthrough the random order matching system of the stock exchanges afterthe listing of our Equity Shares after the repayment of the loanfacility availed by Mags and Morgan from Rabobank International Holdingand (vi) the sale of 1150000 Equity Shares 850000 Equity Shares850000 Equity Shares by Citicorp ChrysCapital and AIF Capitalrespectively through the random order matching system of the stockexchanges after the listing of the Equity Shares. Further the EquityShares held by the Private Equity Investors will be locked-in alongwith our entire pre-lssue equity share capital for a period of one yearfrom the date of allotment of Equity Shares in this Issue. See thesection titled "Promoter Contribution and Lock-in" on page 13 of thisRed Herring Prospectus.The MIA also imposes a restriction on our Promoters and the PromoterGroup Companies prohibiting them from transferring their locked-inEquity Shares for a period that is the lesser of either (i) five yearsfrom the date of the MIA i.e. up to November 252008 or (ii) suchother period as may be prescribed by RBI for restricting the transferof the Equity Shares by the Promoters.The MIA further provides that in the event of sale of the Equity Sharesby our Promoters or the Promoter Group Companies to any third personsuch third person would be required also to purchase the Equity Sharesfrom the Private Equity Investors as per the procedure prescribedunder the MIA. Upon listing of the Equity Shares the Promoters arealso prohibited from selling their shareholding in us on the marketwithout the prior consent of the Private Equity Investors. The MIA alsoprohibits for a period of five years all inter-se transfers betweenthe parties to the MIA without the consent of all the parties.So long as the Promoters and the Promoter Group Companies hold 6.0% ofour equity share capital or during their employment with us or for aperiod of six months from the date of cessation of employment with usthe MIA prohibits them from associating themselves with any businesssimilar to ours. Our Promoters and the Promoter Group Companies haveunder the terms of the MIA been permitted to hold the entire sharecapital of a company proposing to provide business process outsourcingservices ("Other BPO Company") without being engaged in any manner inthe running of such businesses provided that our proposed subsidiaryalso intends to provide business process outsourcing services in thenature of a captive service i.e. provides business processoutsourcing services only to us. In the event that such subsidiaryceases to be a captive service provider Our Promoters and the PromoterGroup Companies are required to reduce their holding in the Other BPOCompany to less than 25.0% and are also prohibited from being connectedwith the Other BPO Company in any manner.The MIA also mandates that our Bank is required to make an IPO ofEquity Shares within 18 months from the date of completion whichincludes listing of the Equity Shares on the Stock Exchange Mumbai orthe National Stock Exchange. However the Bank is required to activelyconsult the Private Equity Investors prior to making such initialpublic offering. It is provided that the minimum IPO price shall be thehigher of (i) the price at which any of the Private Equity Investorssubscribe to the Equity Shares anytime prior to such initial publicoffering and (ii) the price at which any person purchases or subscribesto the Equity Shares prior to such initial public offering. An initialpublic offering at a price lower than the minimum IPO price requiresthe consent of the Private Equity Investors.The MIA seeks to protect the shareholding of the Private EquityInvestors by providing that except in the case of an IPO by the Bankif there is any issue of any Equity Shares or any appreciation rightsor rights issues or options or warrants the Private Equity Investorswould be entitled to acquire such an additional number of Equity Sharesof our Bank so as to maintain/increase their current proportionprovided that the stake of Citicorp in our Bank may not exceed 15.0%and the stake of ChrysCapital and AIF Capital may not exceed 10.0% ofour capital. After the IPO Citicorp ChrysCapital and AIF Capital areprohibited from exercising voting rights on poll in excess of 14.9%10.0% and 10.0% respectively of the total voting rights of all theshareholders without the prior written consent of the Promoters andthe Promoter Group Companies. Further in terms of the MIA we haveagreed not to establish a branch in the United States without theconsent of the^Private Equity Investors.The MIA terminates upon the expiry of the lock-in period in relation tothe Equity Shares subscribed to by the Private Equity Investors exceptfor certain provisions in relation to the warranties and indemnitiestag along rights governing law and notice as contained in the MIA thatsurvive the termination of the MIA. If after the lock-in period thestake of any of the Private Equity Investors in us falls below 5.0%then even these residual provisions of the MIA would terminate withrespect to such Private Equity Investor.We have executed a deed of adherence dated March 8 2004 with thePromoters the Promoter Group Companies and the Private EquityInvestors agreeing to be bound by the terms of the MIA in so far asthey relate to any right obligation or duty upon us.RBI by their letter dated February 26 2004 has also provided theirno-objection to the participation of the three private equity investorsnamely Citicorp International Finance Corporation ChrysCapital II LLCand AIF Capital Inc. in the equity of the Bank at 10% 7.5% and 7.5%respectively.