India's unprecedented bailout of Yes Bank Ltd. comes with an unusual rider: investors who hold more than 100 shares cannot sell 75 per cent of their holding for at least three years.
The caveat means anyone who has more than 2,555 rupees ($35; Dh128) invested in the lender - an amount based on Friday's price and one so small that it covers roughly the cost of a quarterly rail pass in Mumbai - has limited trading options. Investors including Desjardins Global Asset Management and local funds such as ICICI Prudential Asset Management Co. and Aditya Birla Sun Life Asset Management Co. are among those possibly impacted, according to disclosures from earlier this year, compiled by Bloomberg.
"This kind of lock in reminds me of the song Hotel California, where you can enter but can't exit," said Gaurang Shah, vice president at Geojit Financial Services Ltd. "With such forced orders, no one will now want to buy Yes Bank shares."
The perceived penalty on equity holders risks tempering optimism about a revival in India's fourth-largest private bank, which authorities seized last week to effect the nation's biggest bank rescue. Investors are awaiting the lender's much-delayed results for October-December, due Saturday, to understand the financial health of Yes Bank.
Yes Bank shares rose 2 per cent in Mumbai on Friday to 25.55 rupees a share, paring its decline this year to about 46%. The price is higher than the 10 rupees State Bank will pay for each Yes Bank share.
State Bank will have to hold at least 26 per cent of Yes Bank for three years. The rules were officially notified late on March 13 and curbs imposed on Yes Bank - including a limit on withdrawals and servicing of liabilities - will be lifted within three working days.
While Finance Minister Nirmala Sitharaman flagged the lock in on Friday, investors had presumed it would only apply to institutions rescuing Yes Bank and were dismayed when the written notification indicated existing shareholders were subject to the rule, too. Yes Bank issued a statement advising investors holding more than 100 shares to "exercise utmost caution" while trading.
"I would like to think this is a goof-up in drafting the scheme, which they will correct once the full impact is understood," Deven Choksey, managing director at KR Choksey Securities, told BloombergQuint.