Given that fund raise plans have got fuzzier, there is a danger of the company breaching regulatory limits; ‘Neutral’ retained.
Yes Bank informed the exchanges of the following: the board is favourably considering the $500-mn bid from Citax Group (private). The $1.2-bn bid by Erwin Braich/SGPG group is still under evaluation by the bank’s board. There is no further update on the $120-mn bidder’s details (a US fund) or finalisation of bids by the other $180-mn investors.
We view this as a negative development, as the $1.2-bn bid is unlikely to go through given the legal cases (including alleged bankruptcy against Erwin Singh Braich), which would put into question the availability of the $500-mn bid as well as the rest of $300-mn bids, as these could have been conditional on raising a large part of the required capital.
The watchlist and the gross NPAs of Yes Bank combined is +Rs. 500 bn. Yes Bank has an existing NPA provision of Rs. 74 bn, implying a significant amount of capital needed for provisioning which we believe could get front-ended as there has been very little resolution in large stressed exposures of Yes Bank. With a CET-1 ratio of 8.7% in Sep-19, large provisioning without capital infusion could imply Yes Bank breaching regulatory capital limits soon.
Our TP of Rs. 63 is based on 0.75x Sep-21 BVPS of Rs. 85. While we had estimated an Rs. 85/share of FY21F book value, that was contingent upon Yes Bank raising $2-bn of capital and the bank having a loss given default of 50% on its +Rs. 500 bn of stressed loans. Risk to capital raising is a risk to both our estimates of book value and multiples as unavailability of capital raises question on going concern status of the bank.
Impact on the sector
Risks to the going concern status of the bank will likely have an implication for the sector. As of FY19, Yes Bank’s loan book is 30-130% of loan book of large banks (ex-SBI) and 11% of SBI’s current loan book. Given Yes Bank’s asset size and quantum of stressed loans, there are likely to be few merger options excluding SBI, in case it cannot raise sufficient capital. We maintain ‘Neutral’ on Yes Bank. We continue to prefer private corporate banks, ICICI Bank and Axis Bank.