Yes Bank Confident Of Meeting AT-1 Bond Payments
Yes Bank Ltd., which is still to conclude its planned $2 billion fund raise, is confident of meeting coupon payments coming due on its additional tier-1 bonds.
The private lender, according to Bloomberg data, has two coupon payments coming due—a Rs 285 crore payment on Dec. 23 and a smaller Rs 30 crore payment on Dec. 31. The bank had raised a total of Rs 3,280 crore through these AT-1 bonds in two separate issues in December 2013 and December 2016.
According to data available on NSE, the AT-1 bond issued on Dec. 23, 2016 was last traded at a yield of 23.75 percent compared with a coupon of 9.5 percent.
While the availability of funds is not the issue here, the bank’s ability to make coupon payments is dependent on its level of common equity capital due to the features of AT-1 bonds. According to the Reserve Bank of India’s norms governing AT-1 bond issuances, a bank must ensure that it meets minimum requirement on Tier-I, common equity Tier-1 and Tier-II capital at all times for it to be able to make coupon payments.
As on Sept. 30, Yes Bank’s CET-1 ratio stood at 8.7 percent, marginally above the minimum requirement of 8 percent. In June, the bank’s CET-1 ratio was at the regulatory minimum.
“The Bank remains fully capable and committed to make the necessary coupon payments on December 23, 2019 and December 31, 2019 towards it’s AT-1 bonds,” Yes Bank said in response to an email from BloombergQuint.
It said that the bank remains well capitalised with a total capital adequacy ratio reported at 16.3 percent with “total capital funds” in excess of Rs. 51,000 crore.
On Tuesday, the bank’s board met to discuss its capital raising plans but the meet remained inconclusive. The bank said it is willing to “favourably consider” an investment offer of $500 million from Citax. A $1.2 billion offer from Erwin Singh Braich and SPGP Holdings remains under discussion, the bank said.
In response to BloombergQuint, Yes Bank added that Citax has confirmed to the board that the investment monies will be credited to a specific escrow account at the earliest and an application will be submitted to the central bank immediately. “The Bank continues to be in discussions with other potential investors and remains fully committed to closure of the process at the earliest,” it said.
Yes Bank has been taking steps to conserve capital for a few quarters now.
The lender has been cutting its corporate loan exposure, to reduce the level of risk-weighted assets. As on Sept. 30, the domestic corporate loan book stood at Rs 1.21 lakh crore compared with Rs 1.42 lakh crore a year ago. Total advances dropped to Rs 2.24 lakh crore from Rs 2.4 lakh crore in the same period.
In its analyst presentation for the second quarter, Yes Bank detailed the ways in which it has been able to shore up capital. While capital was boosted by 59 basis points owing to the $273 million the bank received through a qualified institutional placement in August, it added 22 basis points through de-growth in its balance sheet.
The major capital burn was owing to higher than expected downgrades on corporate loans and a one-time direct tax impact.
While it’s difficult to accurately predict the capital burn during the current quarter, where the bank is yet to complete its funds raising efforts, the pain due to asset quality issues is likely to continue.
Nomura in its note said that a significant amount of capital may be needed upfront for provisioning. “The watchlist and the gross non-performing assets of the bank combined is over Rs 50,000 crore. Yes Bank has an existing NPA provision of Rs 7,400 crore, implying a significant amount of capital needed for provisions, which we believe could get front-ended,” said the brokerage house, adding that this could lead to a breach of regulatory capital limits soon if fund raising is not concluded.
But capital levels are unlikely to fall below regulatory minimum this quarter. “I don't think that the bank’s CET-1 ratio is suddenly going to drop to below 8 percent in a couple of months. They should be able to make the coupon payments on AT-1 bonds easily,” said Suresh Ganapathy, analyst at Macquarie Research.
Yes Bank, in its response, said that it continues to conserve capital.
Till the time the Bank raises capital, it will continue to work on a capital optimisation strategy through multiple options, including sell-down of assets.Yes Bank Statement To BloombergQuint