Stock Fundamentals

The YES Bank rescue plan

Keerthi Sanagasetti | Updated on March 08, 2020 Published on March 07, 2020

The week gone by was tumultuous for investors in the YES Bank stock. Following the temporary cap on deposit withdrawals, the stock declined more than 50 per cent on Friday. While the RBI’s draft reconstruction scheme, announced after market hours on Friday, will bring some certainty, there could be further volatility depending on how the stock is likely to see more selling pressure in the week ahead.

The reconstruction scheme, on one hand, protects the interests of depositors, employees and other creditors, but on the other hand, holders of bonds qualifying as Additional Tier 1 capital and existing equity investors, have been left in the lurch.

For the former, the scheme calls out for a complete and permanent write-down of all instruments qualifying as Additional Tier 1 capital, after the scheme of reconstruction is approved.

 

 

For equity investors, the capital infusion by State Bank of India (SBI), works out to a straightforward dilution in earnings per share, to the extent of 49 per cent. The markets seemed to have priced in this dilution, already on Friday, where the shares of YES Bank tanked by more than 55 per cent to ₹16.2 per share.

The draft scheme also specifies that the price paid by SBI shall not be less than ₹10 per share (₹2 being the face value and the remaining ₹8 shall be the premium paid).

Quoting a minimum price, which is 38 per cent lower than Friday’s close of ₹16.2, could apply pressure on the stock on Monday morning.

If the scheme is approved as is, SBI would be required to pump in ₹2,450 crore as capital into the bank (at ₹10 per share), resulting in a dilution of 47 per cent in book value per share, as of September 2019, for existing equity investors.

Also, the scheme calls for revision in authorised capital of the bank to ₹5,000 crore from the current ₹800 crore that includes ₹200 crore of preference shares that are yet to be issued. This could be indicative of further dilution for equity investors in the near future, especially since infusion of ₹2,450 crore can only help the bank meet its minimum capital requirements. To be able to continue its business operations as usual, the bank would require additional capital.

Published on March 07, 2020

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
RBI and other central banks
State Bank of India
Yes Bank crisis
Yes Bank Ltd
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.