India’s fallen angel Yes Bank suffers share, bond price plunge

Indian lender Yes Bank tumbled by a record in the dollar bond market and suffered another share price plunge after Moody’s Investors Service cut its credit rating to junk, making the lender a so-called fallen angel.

Losing an investment-grade score is rare among Indian private-sector banks. The lender is now the only junk-rated one among four such lenders — HDFC Bank, Axis Bank, and ICICI Bank — tracked by Moody’s.

The credit assessor attributed its downgrade on Tuesday to governance concerns. The bank is in the midst of a management transition with co-founder and Chief Executive Officer Rana Kapoor set to step down by the end of January. The Reserve Bank of India in September refused to grant him another three-year term.

Yes Bank’s dollar bonds slid by a record 4.7 cents on the dollar to an all-time low of 86.7 cents as of 5:51 p.m. in Hong Kong, according to prices compiled by Bloomberg.

The notes have lost about 5.2 percent since they were sold in January, making them the second biggest loser among fixed-rate dollar bonds issued in 2018 by Indian corporates.

Shares tumbled 11 percent to the lowest level since April 2016 at the close in Mumbai. The stock has slumped by more than half from its August peak.

“In terms of credit assessment, the bank ticked many negative boxes after weak second-quarter results,” Ismael Pili, co-head of Asian bank research in Singapore at CreditSights Inc., said by phone. “Management issues just compounded matters.”

Pili lowered his recommendation on the lender’s 2023 notes citing “sub-par performance and leadership issue” after Yes Bank posted its September-quarter results. Lower sequential earnings, higher non-performing assets and the need for more capital are among his concerns, Pili said on Wednesday.

The Mumbai-based lender has seen a spate of resignations as it continues its search for a successor. Non-executive Chairman Ashok Chawla resigned November 14, followed the next day by O P Bhatt, who quit from the panel set up to find a new CEO. Last week, an external director R Chandrashekhar stepped down, saying he was concerned about recent events at the bank.

Moody’s flagged the following points in its downgrade of the lender’s foreign currency issuer rating to Ba1 from Baa3, as it changed the outlook to negative:

The departures of board members fueled its concerns about corporate governance while the uncertainty around the outcome of the central bank’s report on divergences in bad loans for fiscal 2018 contributed to the negative outlook.

The lender’s funding profile is “relatively weaker” compared with public sector banks in India, the agency said.

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