India’s fallen angel Yes bank drops by record in bond market

By BLOOMBERG

MUMBAI • Indian lender Yes Bank Ltd tumbled by a record in the dollar bond market after Moody’s Investors Service Inc 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 Ltd, Axis Bank Ltd and ICICI Bank Ltd — tracked by Moody’s.

The credit assessor attributed its downgrade on Tuesday to governance concerns. The bank is in the middle of a management transition with co-founder and CEO 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 3.3 cents on the dollar to an alltime low of 88.2 cents as of 12:07pm in Hong Kong yesterday, according to prices compiled by Bloomberg. The notes have lost about 5.2% since they were sold in January, making them the second-biggest loser among fixedrate dollar bonds issued in 2018 by Indian corporates. Shares tumbled 7.3% at 1:37pm in Mumbai yesterday. 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 “subpar 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 yesterday.

The Mumbai-based lender has seen a spate of resignations as it continues its search for a successor. Non-executive chairman Ashok Chawla resigned on Nov 14, followed the next day by OP 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 fuelled 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 to public sector banks in India, the agency said.