CARE downgrades NCDs of Yes Bank promoter MCPL

CARE Ratings on Tuesday downgraded non-convertible debentures of Morgan Credits (MCPL) to ‘BBB-’ from ‘A-’. MCPL is one of the promoter entities of Yes Bank holding a 3.03% stake in the lender as on March 31, 2019. Data from Value Research show that debt mutual funds of Reliance Mutual Fund hold Rs 913.47 crore in debt papers issued by MPCL.

According to the rating agency, the revision in rating takes into account the fall in the stock price of the underlying shares of Yes Bank (YBL) which are held by MCPL or promoters and their relatives. “The revised rating considers the moderation in cover due to fall in the stock price of the underlying shares of YBL,” said CARE Ratings in a press release. Data from Bloomberg show that stock price of Yes Bank has declined 74% in the last six months and by 80% in the last one year.

Data from Value Research showed debt and hybrid schemes of Reliance MF have invested in debt papers of MCPL. One of the schemes, Reliance Equity Hybrid Fund, has investments worth Rs 570.92 crore in MCPL as on August 2019. The rating is based on internal credit enhancement of loan backed by pledge of shares. The rated NCD is backed by the unencumbered listed shares of YBL held by MCPL or MCPL’s promoters and/or their relatives.

The rating is constrained by limited income since MCPL is an investment company, with the primary source of income being dividend from YBL. According to the rating agency MCPL is primarily a core investment company. “In FY18, the loss was Rs 26.05 crore on total income of `22.18 crore. The losses are on account of accrued interest cost that the company is incurring for borrowings that are invested in operating subsidiaries and such losses will get recouped once dividend/capital gain starts flowing from those investments,” said the rating agency.

In the past four years, MCPL received Rs 54.80 crore as dividend income. In FY19, MCPL received Rs 18.96 crore as dividend from YBL.

However, comfort can be drawn from performance of YBL which enjoys good credit worthiness. Substantial diminution in the value of investments held by MCPL in YBL is the key rating sensitivity.

Yes Bank