Shares of Yes Bank Ltd fell more than 7% on Wednesday after Moody’s Investors Service downgraded its long-term foreign currency issuer rating, citing the bank’s capital raise that fell short of its expectations. The sharp fall in share price will also challenge Yes Bank’s ability to raise sufficient capital to maintain ratings, the global rating agency said in a report.
At closing, the Yes Bank scrip was at ₹59.50 on BSE, down 7.47% from its previous close. The stock has declined nearly 84% in the last one year.
Moody’s downgraded Yes Bank’s foreign currency issuer rating to Ba3 from Ba1, long-term foreign and local currency bank deposit ratings to Ba3 from Ba1, foreign currency senior unsecured MTN (medium term notes) programme rating to (P)Ba3 from (P)Ba1, and Baseline Credit Assessment (BCA) and adjusted BCA to b1 from ba2.
It said the outlook on the bank’s ratings, where applicable, was negative. The negative outlook primarily reflects the risk of further deterioration in the bank’s solvency, funding or liquidity, as the bank continues to work through asset quality issues and rebuilds its loss-absorbing buffers.
Moody’s also said most of Yes Bank’s operating profits will get eaten up by loan loss provisions over the next 12-18 months, making them insufficient to support internal capital generation. “This will leave the bank dependent on external capital raising to improve its loss-absorbing buffers, which in Moody’s opinion, is becoming more challenging given the substantial decline in its share price."
In August, the lender raised around $270 million in a qualified institutional placement, and according to a Mint report, it plans to raise $600 million more from large investors. The bank’s board will meet on 30 August to weigh fundraising options.
Following the downgrade, the private lender’s 3.75% dollar notes due February 2023 fell 3.1 cents on the dollar to 86.4 cents as of 5.07pm in Hong Kong, and were set for the biggest decline since 28 November, Bloomberg data showed.
Moody’s noted the deterioration in Yes Bank’s asset quality, with gross non-performing loan ratio in the June quarter rising to 5% from 3.2% in the preceding quarter. Around ₹10,000 crore of loans or 4% of its total loans remain on a watch list—meaning these loans may turn into non-performing assets over the next two-three quarters.
In addition, around ₹7,500 crore of bond investments or 10% of its total investment holdings have experienced rating downgrades in the past quarters.
Though, the bank’s funding and liquidity profile have remained broadly stable, it compares weakly to other rated private sector peers in India.
Moody’s has maintained a negative adjustment for corporate behaviour in Yes Bank’s BCA, which results in a one-notch negative adjustment to the bank’s BCA when compared to its financial profile.
“Yes Bank’s stock valuation has been impacted by uncertain news flow at regular intervals. Sentiment has further turned negative in anticipation of adverse news that might flow in going forward, keeping investors away from taking position in the stock," said Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd.