Moody's: Yes Bank's fundraising via FPO to strengthen capital buffers, lower default risks for creditors

Yes Bank's FPO was subscribed by 95.14% against the total issue size.

Jul 22, 2020 09:07 IST India Infoline News Service

Yes Bank
The Yes Bank's further public offering (FPO) which was subscribed by 95% of total issue size last week, is seen as credit positive for the private lender by the Moody's Investors Services. The rating agency believes the Rs15,000cr FPO will help Yes Bank strengthen its core capital and loss-absorbing buffers apart from reducing default risks for creditors.

In its research note, Moody's on Tuesday stated that successful equity raising reflects Yes Bank's regained access to external market funds, which in turn shows its improving financial strength and will help support depositor confidence.

Yes Bank's FPO received bids of 8,47,86,84,000 equity shares, which accounted for 93% of the total issue size, as per data given on NSE. If included the anchor book portion, then the FPO has been subscribed by 95.14% against the total issue size of 9,09,97,66,899 equity shares. Overall, Yes Bank's FPO size involved up to Rs15,000cr by way of a fresh issue of Equity Shares, including an employee reservation portion of up to Rs200cr.

Moody's further said that based on Yes Bank's capital position as of end-March, we estimate that pro forma the new capital will more than double its common equity tier 1 (CET1) ratio to 12.9% from 6.3%.

The global rating firm added, this brings Yes Bank's capitalization closer to its private-sector peers and strengthens its resilience to potential asset quality stress because of the coronavirus-related disruptions to the economy.

This year in March, Yes Bank was at the brink of bankruptcy, however, was rescued by the Reserve Bank of India (RBI)-led bailout plan where the largest lender State Bank of India (SBI) acquired up 49% equity in the former.

However, with new capital, Moodys' expect the bank to be able to service the coupon of its tier II debt because its CAR, pro forma for the new capital raise, of 19%  is well above the regulatory capital requirements, thereby reducing risks to the bondholders.

On Wednesday, the Yes Bank stock was trading in red at Rs18.85 per piece down by 2.58% on Sensex at around 09.39 am. The stock has also touched an intraday high and low of Rs19 per piece and Rs18.25 per piece respectively. 

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