Shares of India’s major private sector lender Yes Bank slumped on Wednesday morning, despite media reports that the bank’s board is mulling a $1.2 billion fundraiser. According to a report by ET Now, Yes Bank’s board of directors are likely to meet soon on Friday to discuss a mega fundraiser, CNBC TV18 reported citing sources.
The equity infusion will be subject to shareholder approval. The development comes after Yes Bank raised Rs 1,930 crore through Qualified Institutions Placement (QIP) route last week. It allotted 23.1 crores equity shares to eligible qualified institutional buyers at Rs 83.55 per share.
“The downgrade of Yes Bank's ratings takes into account of the lower than expected amount of capital raised by the bank recently; and the risk that the substantial decline in the bank's share price will challenge its ability to raise sufficient capital to maintain the rating at its previous level”, Moody’s said in rating rational.
Furthermore, Moody's expects the bulk of Yes Bank's operating profits to get consumed by loan loss provisions over the next 12-18 months, and thus not support internal capital generation.
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 the asset quality issues and rebuilds its loss-absorbing buffers, it added.
On August 14, 2019, Yes Bank raised Rs 1,930 crore in new capital via a qualified institutional placement (QIP). Moody's said on a Pro-forma basis, the QIP will moderately improve the bank's reported common equity tier 1 (CET1) ratio as of June 30, 2019, to 8.6 percent from 8 percent.
"This will leave the bank dependent on external capital raising to improve its loss-absorbing buffers, which in our opinion is becoming more challenging given the substantial decline in its share price," it said. Yes, Bank's asset quality deteriorated in the quarter ended June 2019, with its gross nonperforming loan (NPL) ratio rising to 5 percent from 3.2 percent at the end of March 2019.
As of the same date, about Rs 10,000 crore of loans -- or about 4 percent of Yes Bank's total loans -- remain on a watchlist, meaning the company expects these watchlist loans may translate into NPLs over the next 2-3 quarters, Moody's said.
On top of that, about Rs 7,500 crore of bond investments -- or 10 percent of its total investment holdings -- have experienced rating downgrades in the past quarters, it added. The rating agency said although the bank's funding and liquidity profile has remained broadly stable, it compares weakly to other rated private sector peers in India.
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