FE: McLeod Russel urges NCLT to quash ‘status quo’ order

19 September 2019: Debt-laden McLeod Russel on Wednesday urged the Kolkata-bench of the National Company Law Tribunal (NCLT) not to continue the interim order of “status quo” against its assets as it has very “serious repercussion” and negative “ramifications” for the operations of the bulk tea producer.

On September 3, the NCLT Kolkata bench passed an interim order of status quo of assets of the Kolkata-based company – once the biggest bulk tea producer in the world – as disclosed in the financial statement for the year ending March 31, 2019, till the next date of hearing.

The order was passed after one of the company’s financial creditors, Techno Electric & Engineering, apprehended disposal of the assets of the corporate debtor (McLeod) for defeating its interest.

Earlier, Techno Electric filed a petition for Corporate Insolvency Resolution Process (CIRP) before the tribunal under Section 7 of the IBC against the tea maker after it had defaulted on repayments of Rs 100-crore loan. “The documents referred to us add strength to the apprehension on the side of the applicant that if an ad interim order is not passed, there is every chance of removal of the assets of the CD (corporate debtor) for defeating the very purpose of (CIRP) resolution if any passed in favour of the applicant,” a two-member bench of Justices Jinan KR and Harish Chander Suri observed while passing the interim order.

On Wednesday, in his submission before the bench, Joy Saha, the counsel for McLeod Russel, said: “My entire line of credit will dry up because of this order. I am not able to pay the wages to around 65,000 workers of our tea gardens. It will have a catastrophic effect on the operations of the respondent company and likely to cause unrest amongst the workers. So far, as the interim order of injunction is concerned, this has very serious repercussion.”

According to Saha, each of the assets over which Techno Electric has asked for injunction are already mortgaged in favour of the banks. Stating that banks were considering a restructuring of loans proposal, Saha said, “All the banks, in common words, have been chastising me because I have not been defended the claim of an unsecured creditor.”

According to the latest annual report of McLeod Russel, part of the Williamson Magor Group, its financial creditors are ICICI Bank, HDFC Bank, State Bank of India, Yes Bank, RBL Bank, Axis Bank, Allahabad Bank, Uco Bank and United Bank of India.

The counsel for the tea company contended that the operational creditor now has taken the driver seat, while the banks, which are the the secured creditors and want to enter into loan restructuring agreement, are now “languishing in the background”.

“If an asset be mortgaged, can it be sold?” asked Saha, adding that as the assets were already mortgaged, the operational creditor would not need further protection from the tribunal. Saha urged the bench not to continue the interim order of ‘status quo’ against the company’s assets.

In his counter-argument, seeking continuation of status quo against McLeod’s assets, Techno Electric & Engineering’s counsel Ratnanko Banerjee said: “In one year, the corporate debtor sold Rs 500 crore worth of assets, even assets were mortgaged. For the purpose of the insolvency resolution process, their assets have to be preserved. I have expressed apprehensions that they will sell their assets, that is why the injunction is required.”

Banerjee allegedly said the Williamson Magor Group had siphoned off money from one group company to other group company. “This is a case for a forensic audit when the time comes,” he added.

Hearing the argument and counter argument, Justice Jinan KR said the bench was “only concerned” about whether the interim order required a ‘modification’ or not. “We are not going to confirm the order, we are not going to set aside the order,” he averred.

The Financial Express reported

LM: Moody’s downgrades Yes Bank rating; outlook negative

28 August 2019: Global rating agency Moody’s Investors Service on Wednesday downgraded YES Bank’s long-term foreign-currency issuer rating, citing lower than expected amount of capital raised and a sharp fall in its stock price which “will challenge its ability to raise sufficient capital to maintain the rating at its previous level.”

Moody’s downgraded YES Bank’s foreign currency issuer rating to Ba3 from Ba1, long term foreign and local currency bank deposit ratings to Ba3 from Ba1, foreign currency senior unsecured MTN program rating to (P)Ba3 from (P)Ba1, and Baseline Credit Assessment (BCA) and adjusted BCA to b1 from ba2.

It said the outlook on the bank’s ratings, where applicable, was negative. The negative outlook primarily reflects the risk of further deterioration in the bank’s solvency, funding or liquidity, as the bank continues to work through asset quality issues and rebuilds its loss absorbing buffers

In August, the lender has raised around $270 million via qualified institutional placement, and plans to raise $600 million more from large investors to bolster its capital buffers. The board will meet on 30 August to mull raising funds via equities.

YES Bank stock has declined over 85% so far in 2019 due to asset quality concerns. At 3.10 pm, the scrip traded at ₹59.30 on BSE, down 7.8% from its previous close.

Following the downgrade, private lender’s 3.75% USD notes, due February 2023, fell 3.1 cents on the dollar to 86.4 cents as of 05:07 pm in Hong Kong, set for the biggest decline since 28 November, according to prices compiled by Bloomberg.

Moody’s also expects the bulk of YES Bank’s operating profits to get consumed by loan loss provisions over the next 12-18 months, and thus will be unable to support internal capital generation. “This will leave the bank dependent on external capital raising to improve its loss-absorbing buffers, which in Moody’s opinion is becoming more challenging given the substantial decline in its share price.”

It noted that YES Bank’s asset quality deteriorated in the June quarter, with gross non performing loan ration rising to 5% from 3.2% a quarter ago. Around ₹10,000 crore of loans or 4% of its total loans remain on a watchlist – meaning that these watchlist loans may turn into non-performing assets over the next 2-3 quarters. In addition, around ₹7,500 crore of bond investments or 10% of its total investment holdings have experienced rating downgrades in the past quarters.

Though the bank’s funding and liquidity profile has remained broadly stable, it compares weakly to other rated private sector peers in India.

Moody’s has maintained a negative adjustment for corporate behavior in YES Bank’s BCA, which results in a one-notch negative adjustment to the bank’s BCA when compared to its financial profile.

The LiveMint reported

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

Yes Bank invokes pledge share of Cox & Kings

26 July 2019: Yes Bank Invocation Of pledge

  • 32,750,139 equity shares having nominal value of Rs. 5 per share, constituting 18.55% of the post-issue paid-up share capital, of a listed company, namely, Cox & Kings Limited.
  • 34,080 equity shares having nominal value of Rs. 10 per share, constituting 30% of the post-issue paid-up share capital, of an unlisted company, namely, Ezeego One Travel & Tours Limited.

Yes Bank Stock Exchange announcement

LM: Icra cuts rating on Yes Bank’s bonds worth ₹32,911.7 crore

24 July 2019: Credit rating agency Icra Ltd on Wednesday downgraded ratings on Yes Bank’s ₹32,911.7 crore bond programme, citing an increase in stressed assets and lack of debt resolutions. The rating on bonds aggregating ₹22,111.7 crore were downgraded by one notch, while that on ₹10,800 crore of additional tier I (AT-I) bonds were downgraded by two notches.

The outlook on the ratings remained negative as Yes Bank saw a sizeable increase in gross bad loans and BB and below rated exposures along with weakened capital cushions, Icra said.

The rating for these AT-I bonds (BBB+) is three notches lower than the rating for the Basel III compliant tier II bonds (A+) of Yes Bank as these instruments have loss-absorption features that make them riskier, said the credit rating agency. The coupon payments are non-cumulative and discretionary and the bank has full discretion at all times to the cancel the coupon payments.

“The cancellation of discretionary payments shall not be an event of default. Coupons can be paid out of the current year’s profits. However, if the current year’s profit is not sufficient or if the payment of the coupon is likely to result in a loss, the coupon payment can be made through reserves and surpluses created through the appropriation of profits, (including statutory reserves),” it said.

The coupon payment is subject to the bank meeting the minimum regulatory requirements for common equity tier I (CET-I), tier I and total capital ratios (including capital conservation buffer, at all times as prescribed by the Reserve Bank of India (RBI), Icra said.

“These AT-I bonds are expected to absorb losses through a write-down mechanism at the objective pre-specified trigger point fixed at the bank’s CET-I ratio as prescribed by the RBI, 5.5% till March 2020, and thereafter 6.125% of the total risk-weighted assets of the bank or when the point of non-viability trigger is breached in the RBI’s opinion,” it said.

The rating downgrades, Icra said, also factor in the further weakening in Yes Bank’s core equity (CET-I) capital cushions with the growth in RWAs and elevated provisioning leading to subdued profitability. The CET-I declined to 8% as on 30 June 2019 against the minimum regulatory requirement of 7.375% for 31 March 2019 and 8% for 31 March 2020.

“Hence, the bank would need to raise capital on an immediate basis. While the board has approved a capital raise of $1 billion, Yes Bank’s ability to raise capital considering its recent performance and earnings guidance remains to be seen. The bank will also need to accelerate the resolution and recovery from stressed exposures and will also need to calibrate growth to restore the capital cushion,” it said.

Icra said it has taken note of the stability in the bank’s overall deposits base, though the current account and savings account deposits declined in Q1FY20, while term deposits witnessed a growth, perhaps a negative for the cost of funds and earnings.

“The management guided towards an increase in the share of granular retail and small and medium enterprise assets to around 50% over the medium to long term from the existing level of 36.1%, though the same will remain dependent on the bank’s ability to raise growth capital,” Icra said.

The ratings continue to factor in the private lender’s position as the fourth largest private sector bank, in terms of total assets, its satisfactory operating profitability and wide branch network, Icra said.

The LiveMint reported

FE: Yes Bank probing whistleblower claim

18 July 2019: Yes Bank is in the process  of carrying out an enquiry into a whistleblower’s allegations of irregularities in operations, potential conflicts of interest concerning a former chief and incorrect classification of non-performing assets (NPAs), the private bank said on Wednesday.

The bank became aware of an anonymous whistleblower complaint in September 2018, through communications from stock exchanges.

The private lender’s management then conducted an internal enquiry of these allegations under the supervision by the bank’s board of directors. The enquiry resulted in a report that was reviewed by the board in November 2018. Based on further inputs and deliberations in December 2018, the private lender’s audit committee engaged an external firm to independently examine the matter.

“The bank, at the direction of the audit committee and with the assistance of this external firm, is continuing to analyse the allegations in the whistleblower complaint,” the lender said in its notes to accounts for the June 2019 quarter.

It added: “Based on work done and findings till date, the bank has not identified any material financial statement implications. The bank will consider the implications of ongoing work once the examination of this matter is completed.”

Earlier this year, Yes Bank appointed Ravneet Gill as its managing director (MD) and chief executive officer (CEO) after the Reserve Bank of India (RBI) denied Rana Kapoor a fresh three-year term. Lapses in compliance with asset classification norms are widely believed to be the reason behind the central bank’s decision.

In a call with analysts on Wednesday, the Yes Bank management responded to queries on the extent of Kapoor’s involvement in the bank. “So, the clear answer to that is other than the fact that he is the largest shareholder of the bank, he has no involvement, executive or non-executive, direct or indirect,” Gill said.

At its 15th annual general meeting (AGM) on June 12, the bank’s management is understood to have sidestepped shareholder queries with respect to former bank chief Rana Kapoor’s reported bid to reenter the bank through the board.

On June 11, rating firm Moody’s put Yes Bank ‘under review for a downgrade’, citing ongoing liquidity pressures in Indian finance companies and real estate firms that will negatively impact the credit profile of the bank, given its sizeable exposure to weaker companies in these sectors.

Shares of Yes Bank ended at Rs 98.45 on the BSE on Wednesday, 5.25% lower than their previous close. The bank’s June quarter results were released after the close of trade.

The Financial Express reported

LM: Yes Bank reports bad loans worth ₹6,230 crore in Q1, net profit slumps 91%

18 July 2019: Yes Bank Ltd on Wednesday reported a 91% drop in fiscal-first quarter profit on account of higher provisioning and lower other income. The management said the bank is looking to raise capital in the ongoing quarter.

The private sector lender posted a net profit of ₹113.76 crore for the quarter ended 30 June from ₹1,260.36 crore a year ago. Profit was lower than the ₹148 crore estimated by a Bloomberg survey of 13 analysts. The bank reported a loss of ₹1,507 crore in the preceding March quarter.

“I would say the first quarter was one of consolidation for the bank. The first and foremost part was the ongoing management transition, which I think is now complete. The second part was, given a common equity tier 1 (CET 1) ratio of 8.4%, it was a quarter for capital optimization. We will be looking to raise capital in the coming quarter,” said Ravneet Gill who took charge as managing director and chief executive officer on 1 March.

Asset quality deteriorated, with gross non-performing assets (NPAs) as a percentage of total loans rising to 5% as against 3.22% in the previous quarter. The bank saw an addition of fresh bad loans worth ₹6,230 crore in the quarter, even as it upgraded or recovered ₹1,680 crore and wrote off bad loans worth ₹340 crore. Of the net slippage of ₹4,500 crore, around ₹2,500 crore is from the book identified earlier.

On Wednesday, shares of Yes Bank lost 5.25% to close at ₹98.45 on BSE, while the benchmark Sensex gained 0.22% to close at 39,215.64 points.

The management clarified that the bank’s total real estate loans stood at ₹24,000 crore, of which 25% has been isolated as sub-investment grade (NPAs). The remaining 75% has minimal slippages, it said.

The higher slippages saw the bank’s provisions increase nearly three-fold to ₹1,784.11 crore during the quarter as against ₹625.65 crore the previous year. This includes a one-off mark-to-market provisioning of ₹1,110 crore due to rating downgrades of investments in companies of two financial services companies it did not name.

The management clarified that it does not expect any more major downgrades in the coming quarter, reiterating the credit cost guidance of 1.25% for fiscal year 2019-20.

On the operations side, the bank’s other income, which includes core fee income, dropped 25% to ₹1,272.66 crore in the quarter from ₹1,694.14 crore a year ago.

Net interest income, or the difference between interest earned on loans and that paid on deposits, increased 2.78% year-on-year (y-o-y) to ₹2,280.84 crore from ₹2,219.14 crore in the corresponding period last year. Net interest margin narrowed to 2.8% from 3.1% in the previous quarter on account of interest reversal. The bank’s loan book grew 18% y-o-y to ₹2.36 trillion, led by retail loans. Current and savings account ratio dropped to 30.2% of total deposits compared to 33.1% in the previous quarter while retail term deposits grew 37.7% y-o-y.

“The key issue with Yes Bank is capital constraints. The bank’s CET1 (Common Equity Tier 1 ratio) has reached 8%. Any further decline will attract problems for the bank. Hence, capital raising is the most important event for the bank,” said Ashutosh Mishra, head of research, Ashika Stock Broking.

The management said it has not identified any material implications on its financial statement from a whistle-blower complaint into alleged irregularities by its former managing director Rana Kapoor.

“The bank, at the direction of the audit committee and with the assistance of this external firm, is continuing to analyse the allegations in the whistle-blower complaint and work is currently ongoing,” it said.

Based on work done and findings till date, it said: “The bank has not identified any material financial statement implications and will consider the implications of ongoing work once the examination of this matter is completed.”

Amid concerns over Yes Bank’s weakening financial and operating performance, both foreign institutional investors (FIIs) and domestic institutional investors (DIIs) cut their stakes in the lender during the quarter, BSE data showed.

FII holding fell to 33.69%, down from 40.33% a quarter ago.

DIIs—mainly mutual funds and insurance companies—now hold a 6.59% stake, against 9.54% in the March quarter. DIIs have reduced their stake for the fourth consecutive quarter.

According to its shareholding pattern on BSE, “UTI along with its various schemes” has reduced exposure by nearly 30 basis points to 1.32% from 1.61% in March quarter.

The names of three investors—HDFC Trustee along with its various schemes, Jasmine Capital Investments Pte Ltd and Vontobel Fund MTX Sustainable Asian Leaders—are not reflected on the list of Yes Bank’s public shareholders as of June 2019. It could not be immediately ascertained if these entities have partly or entirely sold their stakes. Shareholding patterns on stock exchanges show entries only for holdings above 1%. HDFC Trustee along with its various schemes, Jasmine Capital Investments Pte Ltd and Vontobel Fund MTX Sustainable Asian Leaders held 1.05%, 2.12% and 1.05%, respectively in the March quarter.

The LiveMint reported

BS: YES Bank makes two senior management appointments; stock rises 5.5%

8 July 2019: Private lender YES Bank has appointed Rajeev Uberoi senior group president (governance and control) and Anurag Adlakha senior group president and head of financial management and strategy.

These are the first major appointments after Ravneet Gill became managing director and chief executive officer in the fourth quarter of FY19. Uberoi and Adlakha will report to Gill. The bank has reiterated its financial position is sound and its liquidity and operating performance continue to be robust.The bank is being criticised for its stressed asset portfolio and exposure to struggling non-banking financial companies (NBFCs) and real estate.

YES Bank has a considerable exposure to the struggling Anil Ambani Group (ADAG). The bank posted a loss of Rs 1,507 crore in the March quarter on account of a fall in non-interest income and a sharp increase in provisioning for bad loans.  It has sub-standard assets of around Rs 20,000 crore. Of those, some worth Rs 10,000 crore can turn non-performing. Gill has said so far there have been no slippages. However, the bank has made a 20 per cent contingency provision, amounting to Rs 2,100 crore, for the Rs 10,000 crore assets, which are on the watch list. The bank is looking to raise $1 billion.

Scotching speculation about high-level exits from its board, the bank in its statement said, “Over the past few weeks, there has been a lot of unfounded speculation about YES Bank’s board and management stability, asset portfolio, growth prospects, among other things. We strongly refute such speculation, which we suspect is a deliberate and malicious attempt to create instability in the institution by undermining investor and client confidence. We have apprised the authorities of these developments.” There have been a number of exits from its board in the past few months. Mukesh Sabharwal, who was non-executive independent director of the bank, and Ajai Kumar, non-executive director of the bank, were the latest exits from the board just before the annual general meeting. Both of them cited personal reasons for their leaving. Earlier, there were high-level exits including those of Pralay Mondal, R Chandrashekhar, and Vasant Gujarathi.

The Reserve Bank of India (RBI) in May appointed former deputy governor R Gandhi to the board as additional director with a two-year term. It was speculated that the RBI’s move to appoint Gandhi was primarily because the regulator had apprehensions about the functioning of the bank. The board is supposed to meet on July 17 to consider and approve the audited financial results for Q1 FY20. The private lender’s share closed higher with its clarification. The shares closed at Rs 93.10, up 5.56 per cent, on the BSE.

The Business Standard reported

ET: NCLAT directs NCLT to decide on IBC plea against JP Associates in 6 weeks

1 July 2019: The NCLAT Monday directed the National Company Law Tribunal to decide the insolvency plea filed by ICICI Bank against Jaiprakash Associates in six weeks.

The private sector lender had approached the National Company Law Appellate Tribunal ( NCLAT), seeking a direction to NCLT Allahabad-bench to expedite the hearing on its insolvency petition against Jaypee Group firm Jaiprakash Associates Ltd (JAL).

Hearing the matter, a three-judge bench of the NCLAT headed by Chairman Justice S J Mukhopadhyaya directed the NCLT Allahabad to decide on admitting the plea preferably in six weeks.

In September 2018, ICICI Bank had filed a petition before the NCLT Allahabad bench seeking to start insolvency proceedings against JAL, which is into infrastructure and real estate space.

In its plea before the appellate tribunal, the bank had submitted that there has been no progress in its petition filed before the NCLT Allahabad in last nine months.

JAL’s subsidiary Jaypee Infratech is already going through corporate insolvency resolution process (CIRP).

According to the bank, JAL owes around Rs 1,296 crore and it had approached the NCLT to recover the dues by filing an insolvency plea against JAL, under section 7 of Insolvency & Bankruptcy Code ( IBC).

However, JAL challenged the petition before the Allahabad High Court but the same was rejected. JAL then moved the Supreme Court, which too refused to stay the application.

The Economic Times reported

ET: Yes Bank’s AT1 yields soar as analysts worry about thin trade

18 June 2019: Yes Bank’s additional tier-1 (AT1) bond yield soared past 13 per cent, mirroring investor worry the lender’s equity position may get dented with more provisioning for bad loans. Though thinly-traded, the lack of demand for these bonds puts the focus on the bank’s urgent needs for capital.

Yes Bank has been issuing AT1 bonds since 2010. These bonds have been issued in different years their yields have spiked recently. The yield on the 9.50 per cent bond issued on December 23, 2016, for example, jumped to 13.60 per cent, though trading is thin. It was trading at 9.95 per cent in January this year.

Analysts said the sharp jump in the yields is not an accurate reflection of the bond because trades are very thin. On Monday a total of 80 bonds were traded at varied prices. While 30 bonds changed hands at a price of 97.74, 50 bonds changed owners at 94.60, reflecting the sharp movement in prices and hence yields. Bond prices and yields move in opposite directions.

Yes Bank’s AT1 bond yield spike opened up a gap with larger banking peers. Comparatively, ICICI Bank and HDFC Bank are trading at around 9.25 per cent, while SBI is around 8.90 per cent. ICICI was issued at 9.70 per cent in March 2018. “Risk perception for lenders below AAA is clearly higher now. But it is still far from a stage when the central bank says it’s a point of being nonviable. Investors are cautious and it is showing in the yields,” said Karthik Srinivasan, senior vice president, at ratings firm ICRA.

The Economic Times reported