Yes Bank stock gets rating shock

Global rating agency Moody’s Investors Service has downgraded private lender Yes Bank’s ratings to junk status with a negative outlook, citing the lower-than- expected capital raised from the recent QIP issue and the plunging share prices that will be a hurdle in raising more funds.

The agency downgraded the bank’s long-term foreign- currency issuer rating to Ba3 from Ba1, which is below investment grade.

In June and July, Moody’s had warned of a rating downgrade and placed the bank on a rating watch for possible downgrades.

Moody’s also downgraded the long-term foreign and local currency bank deposit ratings to Ba3 from Ba1, foreign currency senior unsecured MTN programme to Ba3 from Ba1 and the baseline credit assessment to B1 from Ba2.

“The downgrade takes into account the lower-than-expected amount of capital raised by Yes Bank recently and the risks in the substantial decline in its share price, which will challenge its ability to raise sufficient capital,” Moody’s said.

Shares of the private bank tumbled over 7 per cent in Wednesday’s trade. On the BSE, the scrip settled at Rs 59.50, a loss of Rs 4.80 over the previous close.

On August 14, the bank had raised Rs 1,930 crore in new capital through a qualified institutional placement (QIP), which will improve its reported common equity tier-1 ratio to 8.6 per cent from 8 per cent as of June 2019.

Moody’s feels the bulk of Yes Bank’s operating profit will get consumed by loan loss provisions over the next 12-18 months and will not support its internal capital generation.

“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 decline in its share price,” it observed.

The agency said it could change the ratings outlook to stable if the bank maintains its current asset quality profile and concludes a further material capital raise that strengthens its loss absorbing buffers.

However, there can be further rating downgrade if there is a sustained deterioration in its impaired loans or capital ratios declines because of losses and if its funding or liquidity deteriorates, it said.

Yes Bank