Shares of Yes Bank rose as much as 15 percent in just four days after the private sector lender announced that the board will meet on November 29 to discuss fundraising plans.
For today, the stock gained over 5 percent. The sentiment was also positive after Edelweiss Securities upgraded Yes Bank to ‘Buy’ with a target price of Rs 101, indicating an upside of 40 percent from the current market price.
The scrip has risen 22 percent in 1 month and has doubled investor wealth, surging 131 percent since October 1. However, the stock has fallen 59 percent in the last 1 year and over 61 percent on a year-to-date basis.
"A meeting of the board of directors of Yes Bank will be held on Friday, November 29, 2019, to discuss and consider raising of funds by issue of equity/ equity-linked securities through permissible modes", YES Bank said in a regulatory filing. The fundraising is subject to necessary shareholders/ regulatory approvals, as applicable, it added.
Earlier in October, the lender had informed the bourses that it has received a binding offer from a global investor for an investment of $1.2 billion in the bank through fresh issuance of equity shares. It also added that the bank received strong interest from multiple foreign as well as domestic private equity and strategic investors for the capital raise.
Yes Bank has already raised Rs 1,930 crore million through Qualified Institutional Placement (QIP) in August 2019.
With exposure to several troubled shadow banks, real estate firms and stressed companies, Yes Bank’s bad loans have risen sharply, forcing it to step up provisioning and eroding its capital.
Edelweiss perceives the lender as a high risk-return potential candidate as base-case holds out the bank is here to stay, braving the known and unknown challenges and a temporary lull in earnings.
“At its current 0.8 times FY21E P/B, the stock factors in multiple challenges and a clear under-valuation of its liability franchise. The market cap-to-deposit at sub-10 percent – lowest among peers – starkly reflects the under-appreciated franchise value. Once it navigates the challenges, the revamped business model would emerge stronger, sustainable and less volatile,” Edelweiss said in a report.
It added that one of the key risks to their bullishness is the bank’s ability to raise capital as any upset thereof will restrict its ability to clean up the balance sheet and limit growth options.
Recently, Moody's said that the bank's weakening financial position can be somewhat offset by the planned capital raise. However, Moody's noted that there were significant execution risks around the timing, price and regulatory approvals required.
During the review period, the rating agency will focus on the bank's ability to raise new equity capital. An inability to raise the planned equity capital will negatively impact Yes Bank's credit profile and ratings, it added.
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