Shares of Yes Bank Surge Amidst Acquisition Talks with Japan's SMBC

Yes Bank's share price has experienced a significant surge following reports that Sumitomo Mitsui Banking Corporation (SMBC), a Japanese financial powerhouse, is in advanced discussions to acquire a majority stake in the Indian private lender. The potential deal has sparked considerable interest, with Yes Bank's shares jumping as much as 9.64% in early trading today.

Deal Structure and Regulatory Approvals

SMBC has reportedly received a nod from the Reserve Bank of India (RBI) to acquire up to 51% stake in Yes Bank. The Japanese banking major is considering two options for the acquisition: initially acquiring less than 26% and subsequently merging with Yes Bank through a share swap, or directly acquiring up to 26% and making an open offer. While SMBC's total holding may eventually reach 51%, its voting rights will be capped at 26% in accordance with RBI regulations.

Strategic Implications and Potential Open Offer

If the deal materializes, it could trigger a mandatory open offer for an additional 26% stake in Yes Bank. A successful deal and open offer could make SMBC the single-largest shareholder in Yes Bank. This move would also make SMBC the bank's largest investment.

Background and Stakeholder Interests

The discussions between SMBC and Yes Bank have been ongoing for several months, with senior leaders from SMBC meeting with officials from State Bank of India (SBI) and other key shareholders in Mumbai last week to finalize the terms. SBI, which currently holds a 24% stake in Yes Bank, has been looking for a strategic investor following the bank's turnaround since its 2020 rescue. The proposed transaction may value Yes Bank at approximately $1.7 billion. This deal offers an exit route for SBI and other banks that participated in Yes Bank's 2020 bailout and introduces a strategic foreign promoter.

Market Response and Analyst Views

The news of the potential acquisition has been well-received by the market, with Yes Bank's share price rallying. According to SEBI-registered analysts, Yes Bank shares are showing signs of a bullish reversal, citing key technical support and improving momentum amid speculation of the potential stake acquisition by SMBC.

RBI's Role and FDI Regulations

The RBI is said to have provided verbal assurance to SMBC that it would be allowed to retain a majority stake in Yes Bank. While current foreign direct investment (FDI) rules cap individual foreign bank stakes at 15% and aggregate foreign ownership in private banks at 74%, the RBI has made exceptions in the past for distressed banks.