FE: Under two months,Moody’s again warns of junking Yes Bank ratings

5 August 2019: In more troubles for the already struggling Yes Bank, global rating agency Moody’s Monday reiterated it decision to keep its ratings “under review for downgrade” for the second time in under two months citing worsening asset quality and higher exposure to shadow banks.

It has also extended its review to downgrading its long-term foreign and local currency bank deposit ratings of Ba1, foreign-currency senior unsecured MTN programme rating of Ba1, and baseline credit assessment of Ba2.

In a note Monday, the agency also said the bank’s counterparty risk assessment of Baa3 and domestic and foreign currency counterparty risk rating of Baa3 also remain under review for downgrades.

It can be recalled that on June 12, Moody’s had placed Yes Bank’s ratings under review for a downgrade, citing worsening asset quality driven primarily by the housing finance companies and non-bank finance companies, which stood at 6.4 percent of its loan books.

Monday the agency has also extended its review for downgrade of the bank’s IFSC banking unit branch assessment of Baa3 and domestic and foreign-currency ratings issued from this unit at Baa3 up for review.

“The review for downgrade was initiated on June 11, reflecting our expectation that the ongoing liquidity pressures on finance companies will negatively impact Yes Bank’s credit profile, given its sizeable exposure to weaker companies in the sector,” it said.

The agency noted the further deterioration in the bank’s asset quality, with the gross nonperforming loan (NPL) ratio increasing to 5 in the June quarter from 3.2 in the March quarter. Its profitability also declined, with an annualized return on assets of 0.1 percent compared to 0.5 percent in year to March 2019.

It can be noted that after the RBI asked its founder CEO Rana Kapoor to leave the bank in January end for many a corporate governance failure, the new management under Ravneet Gill has begun a massive cleaning of the book which saw the bank reporting its first ever loss at a hefty Rs 1,506 crore in the March quarter.

Though the bank remained in the green it reported a massive 92 percent plunge in numbers at a low Rs 96 crore for the June quarter as its exposure to the troubled NBFCs and realty players roiled other improvements which saw a massive spike in bad loans provisions and ratios.

The bank’s common equity tier 1 ratio also declined to 8 in June from 8.4 in March.

For the June quarter, nearly Rs 10,000 crore of loans, which represented about 4 percent of its loan book, remained under a watchlist. Based on management expectation, these watchlist loans could potentially translate into NPLs over the next two to three quarters.

In addition, about Rs 500 crore of bond investments, representing 10 percent of its total investment holdings have experienced rating downgrades in the past quarters.

The bank has a contingent provision of Rs 700 crore against the watchlist loans and has also taken some marked-to-market losses on the investments that were downgraded.

“Any inability of the bank to raise equity capital over the next 1-2 quarters will add significant pressure to its ratings. The review will also focus on developments in the watchlist portfolio, including the potential for resolution or slippage of some key exposures,” Moody’s warned.

It also said it will unlikely upgrade the ratings over the next 12-18 months and warned that it could downgrade if there is a sustained deterioration in its impaired loans or loan-loss reserves, or if the rate of new NPL formation is significantly higher than previously experienced.

Scuppering its fund raising plans, Moody’s domestic arm Icra had on July 31 had downgraded over Rs 32,000 crore of the bank’s debt to junk, with negative outlook, which came after the share price lost more than 53 percent of its value to date since January.

This was the second downgrade by Icra on Yes Bank’s debt rating, and has complicated Gill’s efforts to raise the planned USD 1.2 billion through a mix of public and private share sales. Gill took the helm March 1 after running Deutsche’s India unit for more than six years.

Yes Bank was the top loser on the Nifty pack Monday plunging 8.15 percent to Rs 8.10, while the benchmark tanked 1.23 percent.

The Financial Express reported

LM: Slowdown shows in LIC Housing Finance Q1, asset quality weakens

5 August 2019: For LIC Housing Finance, first quarter was all about keeping its balance sheet from getting hurt. In that, it succeeded on some parameters, but failed in others.

The housing finance company managed to grow its core income by 18% and maintain its margins in an environment vitiated by liquidity crunch and a deepening real estate slowdown.

But it couldn’t escape the impact of the slowdown on asset quality and growth metrics.

Disbursements showed how bad developer finance has turned while individual mortgages continued to buttress growth. Overall disbursements grew by just 7%, a reflection of the current slowdown in real estate. Individual mortgages grew at a slow pace of 8%.

LIC Housing Finance’s project loan disbursements shrank from a year ago period. This is a good thing as developer finance is where the pain is and every housing finance company is becoming choosy here. This ensures some safety in future asset quality. That said, the developer book still stands at nearly 7% of the total loan assets.

To be sure, LIC Housing Finance has built itself enough provisions to keep it safe against risks. But for the June quarter, its stage three bad loans, as per new accounting standards, stood at 1.98%, an increase from 1.34% in the March quarter.

“Asset quality miss continues and it looks more linked to the weak real estate market than technical slippage concerns, as indicated by management in 4QFY19,” said analysts at global brokerage firm Nomura Securities.

The firm forecasts a sharp rise in average credit costs for the lender compared with the 15 basis points average credit costs over last 5-7 years. One basis point is one-hundredth of a percentage point.

The stock fell over 1% in the first hour of trade, partly because of the weakness in the broad market. It traded at a modest multiple of about 1.3 times its estimate book value for FY21 which analysts believe captures asset quality expectations.

The LiveMint reported

DNA: Etihad’s bid extension plea rekindles Jet Airways revival hopes

5 August 2019: This may be the last-ditch effort to rescue Jet Airways.

Etihad Airways, the joint venture partner with a 24% per cent stake in the beleaguered airline, has requested the creditors to give them more time to submit expression of interest (EoI) in the bankruptcy court.

“It was after Etihad Airways, one of the Jet’s largest shareholders, put in a request that the committee of creditors (CoC), which had met on Friday, gave an unconditional nod to extend the deadline for submitting the EoI,” said a banker who attended the meeting.

THE LAST ATTEMPT

• If there are no credible bidders, then the airline will have to proceed for liquidation  

• On June 20, NCLT admitted Jet Airways under IBC after lenders moved the court

• Rs 8,500 crore – Jet Airways owes to lenders  

• over Rs 10,000 crore it has to pay to its vendors  

• Rs 3,000 crore – Dues of its employees  

• Rs 13,000 crore – loss the airline has incurred in the last few years

Bidders now have time till August 10 to submit their bid.

“If there are no credible bidders, then the airline will have to proceed for liquidation,” said the banker.

“We are hoping that Etihad will come with a credible plan which can be implemented,” he added.

Jet Airways, which is now admitted in the Mumbai Bench of the National Company Law Tribunal (NCLT), is waiting to see if there are any credible bidders to fly it out of the financial mess.

On June 20, the Mumbai bench admitted Jet Airways under Insolvency and Bankruptcy Code (IBC) after a consortium of 26 lenders, led by State Bank of India (SBI), referred it to the bankruptcy court. The airline was grounded on April 17 as it ran out of cash. Jet owes over Rs 8,500 crore to lenders, over Rs 10,000 crore to its vendors, a majority being the aircraft lessors, and over Rs 3,000 crore to its employees, who have not been paid since March. The airline is having negative net worth for a long time, and has run a loss of over Rs 13,000 crore in the past few years.

In late June, the resolution professional Ashish Chhawchharia had floated EoIs for selling stake in the airline. The deadline for receipt of EoIs was kept at August 3.

In April this year, the Hindujas had come as a knight in shining armour to be a majority partner. But just when the bankers were to meet the potential investors in Dubai to discuss the takeover, a court in Amsterdam declared the airline bankrupt over the liability of Rs 150 crore. Fearing other liabilities, Hindujas backed out.

“This is to bring to the attention of all interested resolution applicants that the revised deadline for submission stands at 4 pm (India time) on 10 August, 2019,” said Ashish Chhawchharia, Jet Airways’ resolution professional in a note on Saturday.

“The proposed extension is to ensure the objectives of the IBC are achieved and we are able to maximise the value of the assets of the corporate debtor and achieve a better outcome for all stakeholders in this fast-track process,” the note said.

OPINION

‘RESOLVE THE CASE EARLY’

The expectation is that some bidder will come and take over Jet. But the bidder has to meet the terms of the lenders consortium and the employees. Even on June 20, when the NCLT had admitted the petition the court was of the view that the case is of national importance and the employees’ welfare is of prime importance. The court said that the case needs to be resolved in three months’ rather than the usual time of six months. There is a big demand for an airline like Jet Airways. There is a void in the lucrative sectors like Mumbai-London or Delhi-London.

Vineet Naik, senior advocate, Bombay High Court

The DNA reported

BS: Insolvency case: NCLAT stays eviction of Sterling Biotech from its premises

5 August 2019: The National Company Law Appellate Tribunal (NCLAT) has stayed eviction of Sterling Biotech from its premises as the debt-ridden company was going under the insolvency resolution process and was under the moratorium period.

A two-member bench headed by NCLAT Chairman Justice S J Mukhopadhaya upheld the order passed by the Mumbai Bench of the National Company Law Tribunal (NCLT), which had asked Srei Infrastructure Finance, a financial creditor, to hand over the possession of the A and B wing premises of Laxmi Towers.

The appellate tribunal observed that although Sterling Biotech, which is presently going through liquidation, is not the owner of the premises it cannot be ejected or disturbed during the moratorium period as the company has to remain as a going concern.

“We hold that the Adjudicating Authority (NCLT) has rightly directed the Appellant to hand over the possession of B’ Wing premises of Lakshmi Towers and rightly prohibited the Appellant from evicting the Corporate Debtor (Sterling Biotech) from A’ Wing premises of Lakshmi Towers,” said NCLAT.

However, it also said that “So far as the question as to who is the owner of A’ and B’ Wings premises of Lakshmi Towers and whether the Appellant has any right over the said property, such questions are not required to be determined in the proceeding under the I&B Code’.”

NCLAT also said if Sterling Biotech is saved during the liquidation proceeding or if it is sold to a third party along with the employees then, in such case, one may move before the Competent Court of law for appropriate decision.

Besides, the appellate tribunal also said that “the Liquidator cannot sell the assets of the premises in question.”

Resolution Professional of Sterling Biotech had moved NCLT against the financial creditor to return the possession of B Wing premises of Lakshmi Towers and restrain Srei Infrastructure Finance from taking any action in relation to A Wing premises, which had allowed it.

Following which, Srei Infrastructure Finance moved NCLAT.

It had contended that the property in question does not belong to Sterling Biotech and being a third party property, the order of Moratorium’ passed under Section 14 of the I&B Code’ will not be applicable.

Opposing it, the RP had submitted that it amounts to obstruction in the matter of keeping Sterling Biotech as a going concern.

Sterling Biotech, whose promoters Nitin Jayantilal Sandesara and Chetankumar Jayantilal Sandesara are absconding, has a total debt of over Rs 9,000 crore.

The Business Standard reported