28 August 2019: Global rating agency Moody’s Investors Service on Wednesday downgraded YES Bank’s long-term foreign-currency issuer rating, citing lower than expected amount of capital raised and a sharp fall in its stock price which “will challenge its ability to raise sufficient capital to maintain the rating at its previous level.”
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 program 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
In August, the lender has raised around $270 million via qualified institutional placement, and plans to raise $600 million more from large investors to bolster its capital buffers. The board will meet on 30 August to mull raising funds via equities.
YES Bank stock has declined over 85% so far in 2019 due to asset quality concerns. At 3.10 pm, the scrip traded at ₹59.30 on BSE, down 7.8% from its previous close.
Following the downgrade, private lender’s 3.75% USD notes, due February 2023, fell 3.1 cents on the dollar to 86.4 cents as of 05:07 pm in Hong Kong, set for the biggest decline since 28 November, according to prices compiled by Bloomberg.
Moody’s also expects the bulk of YES Bank’s operating profits to get consumed by loan loss provisions over the next 12-18 months, and thus will be unable 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.”
It noted that YES Bank’s asset quality deteriorated in the June quarter, with gross non performing loan ration rising to 5% from 3.2% a quarter ago. Around ₹10,000 crore of loans or 4% of its total loans remain on a watchlist – meaning that these watchlist loans may turn into non-performing assets over the next 2-3 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 has remained broadly stable, it compares weakly to other rated private sector peers in India.
Moody’s has maintained a negative adjustment for corporate behavior in YES Bank’s BCA, which results in a one-notch negative adjustment to the bank’s BCA when compared to its financial profile.