Shares of India's fourth largest private sector lender Yes Bank plunged on Wednesday morning, after global brokerages raised concerns on the future of the bank following delay in $2 billion capital raiser.
Shares of India’s fourth largest private sector lender Yes Bank plunged on Wednesday morning, after global brokerages raised concerns on the future of the bank following delay in $2 billion capital raiser. Yes Bank share price plunged by more than 19% to hit the day’s low at Rs 40.70 on BSE. Brokerage firms including Macquarie and Nomura has raised questions of the bank’s future after the bank failed to close the intended 42 billion fund raiser. According to Nomura, the unavailabilty of capital “raises questions on the going-concern status of the bank.” Risks to the ‘going concern’ status of the bank will likely have an implication on the sector, the firm added in its report.
Yes Bank yesterday said that the $1.2 billion offer by Canadian investor Ervin Singh Braich is still under discussion . The development came after media reports said that Canadian investor Erwin Singh Braich’s $1.2 billion investment offer may be rejected, and another one which said that billionaire Rakesh Jhunjhunwala too was having second thoughts on his offer of $25 million. Yes Bank added that “The Board is willing to favourably consider the offer of US$500 Million of Citax Holdings and Citax Investment Group and the final decision regarding allotment to follow in the next board meeting, subject to requisite regulatory approvals.”
According to Nomura, the outcome of the Yes Bank baord on bids is a negative development as $1.2 billion bid from Erwin Singh Braich is unlikely to go through. Further, there are doubts about whether $800 million would also go through as availability of $1.2 billion could have been the condition on raising a large part of the required capital. Provisioning by the bank for stressed assets could be front-ended. Nomura has retained a nuetral rating on the stock with a target price of Rs 63.
Global brokerage firm Macquarie siad that Yes Bank would need $2.5-3 billion over the next 12-18 months. If it is unable to raise the capital in the next 6 months, it poses a grave threat to financial system at large. “Why did the board even decide to announce they have a binding bid from Erwin Singh Braich? Should the management not have done due diligence before announcing the bid?,” Macquarie noted in its report. Macquarie has retained an underperform rating on the shares with a target price of Rs 50.