Yes Bank to raise Rs 15,000 crore via FPO

Yes Bank is planning to raise Rs. 15,000 crore via equity fundraising. They have announced an FPO (Follow-on Public Offer) for the same:

Issue open: 15 July 2020

Issue closes: 17 July 2020

Price Band: Rs. 12-13

Face Value: Rs. 2/per share

Minimum application size: 1,000 shares

All Institutional, foreign and domestic investors are allowed to participate.

What’s going on is Yes Bank currently?

• The bank posted a consolidated net loss of Rs. 16,432 crore in FY20 compared to a net profit of Rs.1,709 crore in FY19. Total Income for FY20 currently stood at Rs. 29,593 crore ( -13.7% YoY)

• Yes Bank has been troubled with high NPAs and low capital fundraising capability. The bank has gross NPA’s of 16.8% in Q4FY20 (one of the highest in the industry, with an industry average of 4.5%) and a Net NPA of 5.03%.

• Bank’s Tier 1 capital stood at 6.5% (much less than RBI’s minimum requirement of 8.875%). The fresh capital raised via this FPO is expected to increase the tier 1 capital to its minimum regulation limits. However, even with a successful FPO, the bank’s capital adequacy would still be much lower than the industry average.
• This year, Yes Bank breached  RBI’s minimum requirement of Statutory Liquidity Ratio and Liquidity Coverage Ratio.
• Bank’s CASA ratio stands at 32.1% (much lower than compared to other banks like ICICI Bank: 47%, Axis Bank: 41%)
• The bank has a net interest margin of 1.4% (much lower than compared to the industry average of 3.8%)

The view Forward:

• Fundraising is still a challenge for Yes Bank. Post the writing down of its AT1 bonds, Yes Bank will find it extremely difficult to raise money via the bond route as investors have lost confidence and trust.{{tweet1}}
• The bank saw a significant decrease in its total deposits, as soon as the moratorium was lifted. The exact numbers are yet to be reported by the company. The lowest cost of funds for a bank is its deposits. 
• With stock price being so low, the bank’s ability to raise large amounts of capital through the equity route is also very limited.
• Although Yes Bank has provisioned for most of their NPA’s, however, the NPA’s are expected to rise even further. Once the loan moratorium gets lifted, all banks and NBFC’s will witness a sharp rise in their NPA’s. Determining true asset quality is extremely difficult currently due to the government-imposed moratorium.
• A small positive is that the stock has already priced in a lot of the concerns. 
• The assumption of going concern is dependent on the bank’s ability to achieve improvements in liquidity, asset quality and solvency ratios.

Yes Bank remains a fundamentally weak bank, however, one may invest in the FPO for purely speculative listing gains, as the issue IP priced at about 45% below the current market price. Our VGQM stock analysis model currently has a SELL rating on the stock.

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