MUMBAI: Rating company ICRA cited likely corporate governance flashpoints to join its overseas parent Moodys in downgrading Yes Bank bonds, this time of about Rs 33,000 crore in debt outstanding locally, dealing a further blow to the Indian lender whose stock has plunged 56% in the past three months.
ICRAs downgrades included Basel compliant and infrastructure bonds. Ratings on the instruments were revised down by a notch to largely double A from double A plus.
“The rating downgrade considers the series of resignations from the board of directors, which raise concerns on corporate governance at the bank,” the rating company said in the note.
The banks $600-million worth of overseas bonds tumbled 12% from their peak in March after Moodys downgrade on Tuesday. Investors expect the domestic bonds to fall Thursday after the ICRA downgrade.
Yes Bank shares slumped to close at Rs 161.7 Wednesday on the BSE. The stock could extend losses on Dalal Street after the ICRA downgrade, while mutual funds will have to take mark-to-market losses on their portfolios.
The total bonds downgraded aggregate to about Rs 33,000 crore, of which infrastructure bonds are worth about Rs 7,030 crore.
“ICRA will continue to monitor the progress made by the bank on the appointment of a new MD&CEO, outcomes of the risk supervision audit by the regulator, capital raising to improve the capital cushion, and any further developments which may impact the credit profile,” ICRA said.
The central bank rejected Yes Banks plea to extend CEO Rana Kapoors term to at least until April 2019, and asked it to ensure that a replacement were in place from February 1, in line with its firm stand on restricting the stints of bank chief executives.
Subsequently, three directors including Ashok Chawla, Vasant Gujarathi, and Rentala Chandrashekhar, have quit. The head of the CEO search committee for the private bank, O.P. Bhatt, also resigned abruptly.
Many mutual funds own bonds issued by Yes Bank and they may have to bear some mark to market losses this quarter. Among international investors, BlackRock, Credit Agricole, Credit Suisse, AXA, and HSBC Holdings are holders of offshore bonds, data from Bloomberg showed.
The downgrades would make it more expensive for Yes Bank to raise funds – both at home and abroad. After the downgrade, prices of overseas bonds fell more than half a percent on Tuesday.
On Wednesday, Yes Bank's dollar bonds slid a record 4.7 cents on each dollar to an all-time low of 86.7 cents, according to Bloomberg.
Yes Banks overseas bonds offered a coupon of 3.75% at the time of the primary sale. Such bonds were sold in January earlier this year. Six foreign banks, including Bank of America Merrill Lynch, CLSA, HSBC, JP Morgan, Nomura International, and Standard Chartered Bank, helped the private lender to raise the money as lead managers. There were nearly 40 investors, showed data from Bloomberg.
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