Brokerages not pleased by $1.2 billion investment offer to Yes Bank. Here’s why

Brokerages not pleased by $1.2 billion investment offer to Yes Bank. Here's why

Yes Bank on Thursday informed exchanges that a global entity has made a binding offer to invest $1.2 billion in the cash-starved lender through fresh issuance of equity shares, subject to regulatory, board and shareholders approvals. However, it did not reveal the identity of the global entity.

In the statement, the bank also said that it continues to be in advanced discussions with other global and domestic investors for future investments.

The announcement led to a jump of 24 percent in Yes Bank’s shares, taking the price to Rs 70.45 on the BSE on Thursday.

However, brokerages did not seem very pleased with this announcement. While Morgan Stanley remained ‘underweight’ on the stock, Nomura maintained its ‘neutral’ stance.

According to Morgan Stanley, capital raise of $1.2 billion from a global investor is positive, however, it noted that since the bank has very high exposure to stressed sectors, it will take time to get on the track.

It also noted that as the lender lacks a strong retail franchise or is a high-margin growth engine, the risk-reward is unattractive. It maintained the stock’s target price at Rs 55 per share.

Nomura said that the large capital raise could address the ongoing concern risk, however, sustainable pre-provision operating profit (PPoP) and loss given default (LGD) will be the key considerations for the investors over the next 2 years.

It further noted that a $1.2 billion capital raise, assuming stock at Rs 60 per share, will imply a 50 percent dilution in the shareholdings of the lender. Nomura maintained its target price for the stock at Rs 110 per share.

What to expect in Q2 results?

The lender, which will release its September-quarter earnings today, is also expected to reveal the name of the investor. Sources told CNBC-TV18 this global investor is SP Global Holdings.

For the quarterly results, analysts are expecting Yes Bank to post a net loss for the given quarter. According to data already available, Yes Bank’s deposits have shrunk by 6 percent year-on-year (YoY) and about 7.5 percent sequentially. Advances have shrunk by over 3 percent YoY and under 2 percent, sequentially. Yes Bank’s net interest margin could be under pressure given the fact that the loan book has shrunk, as well as, the fact that slippages may be on the higher side due to the stress in the portfolio.

Prabhudas Lilladher expects an 89 percent year-on-year (YoY) fall in profit and a 4.50 percent decline in NII in Q2FY20. Edelweiss Securities sees a loss of Rs 1,907.30 crore over a profit of Rs 964.70 crore last year. The brokerage also projected 44 percent dip in PPOP for the quarter ended September 30.

“We expect asset quality and credit cost to throw up negative surprises with higher than guided range. Also, deposits will witness a QoQ dip of 8 percent along with a loan growth decline of 4-5 percent. Fee income trends will be volatile and higher slippages will weigh on margins. This coupled with one-time DTA mark-down will lead to a loss in this quarter,” Edelweiss said in a report.