Indian fallen angel Yes Bank suffers from falling stock and bond prices

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Indian lender Yes Bank fell by record dollar bond market and suffered further share price drop after Moody’s Investors Service downgraded its credit rating to junk, making the lender a so-called angel fallen.

The loss of an investment grade is rare among Indian private sector banks. The lender is now the only one to be poorly rated among four of these lenders – HDFC Bank, Axis Bank and ICICI Bank – tracked by Moody’s.

The credit assessor attributed its deterioration on Tuesday to governance issues. The bank is in the midst of a management transition with co-founder and CEO Rana Kapoor expected to step down by the end of January. The Reserve Bank of India refused in September to grant him a new three-year term.

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

The notes have lost about 5.2% since being sold in January, making them the second biggest loser among fixed rate dollar bonds issued in 2018 by Indian companies.

Shares fell 11% to the lowest level since April 2016 at the close in Mumbai. The stock has fallen more than half from its August peak.

“In terms of credit scoring, the bank ticked a lot of negative boxes after the weak second quarter results,” Ismael Pili, co-head of Asian banking research in Singapore at CreditSights Inc., said by phone. management only made matters worse. “

Pili lowered its recommendation on the lender’s 2023 ratings citing “a below-normal performance and leadership issue” after Yes Bank released its September quarter results. Lower sequential profits, 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 string of resignations as it continues its search for a successor. Non-executive chairman Ashok Chawla resigned on November 14, followed the next day by OP Bhatt, who resigned from the panel set up to find a new CEO. Last week, an outside director R Chandrashekhar resigned, expressing concern about recent events at the bank.

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

Departures of board members fueled concerns over corporate governance as uncertainty over the outcome of the central bank’s FY18 bad debt divergence report contributed to the negative outlook .

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

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