YES Bank shares rally 21% in 5 session; What Moody's said on SMBC stake acquisition

YES Bank shares extended their gains on Thursday as the global rating agency Moody's Ratings said that the move of 20 per cent stake acquisition by Sumitomo Mitsui Banking Corporations (SMBC) is 'credit positive' for the bank. It said that  acquisition brings in a long-term strategic partner with a strong balance sheet and funding capacity to support its growth.

Japanese-financial major SMBC is set to acquire 20 per cent stake in the YES Bank from State Bank of India (SBI) and seven other private banks-  HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, IDFC First Bank, Federal Bank and Bandhan Bank- who had invested during its reconstruction phase in March 2020. SMBC will acquire this stake at a price of Rs 21.50 apiece for Rs 13,482 crore.

SMBC-parent Sumitomo Mitsui Financial Group (SMFG) plans to make YES Bank an equity-method affiliated after the acquisition, which is subject to regulatory and shareholders approvals. SMFG also owns SMFG India Credit, one of the largest diversified non-banking financial companies (NBFCs) in India.

Following the stake acquisition, SMBC will be able to nominate two non-executive directors to YES Bank's board to support is strategy and governance. SBI would have the right to nominate one non-executive and non-independent director, which currently has the right for two.

The stake acquisition deal in YES Bank Ltd is subject to approval from the Reserve Bank of India (RBI) and the Competition Commission of India (CCI). The RBI has limited the foreign ownership in the banks to 15 per cent but it has made exceptions to allow higher overseas ownerships in the distressed banks.

YES Bank shares jumped 2.65 per cent to Rs 21.52 during the trading session on Wednesday, with a total market capitalization close to Rs 68,000 crore. The stock had settled 20.96 on Tuesday. Shares of YES Bank have zoomed more than 21 per cent in the last five sessions, since the announcement of stake acquisition.

Recently, news portal MoneyControl, citing sources, reported that YES Bank has initiated a formal search for its new chief executive office (CEO). The director board of the leading private lender has engaged global recruitment firm Egon Zehnder to run the process, it said.

On the other hand, brokerage firms are not so positive on YES Bank even after stake acquisition as they believe that fundamentals of the lenders are not changing even as the clarity on the buyer. They believe that the news is a sentimental positive for YES Bank.

In its latest note, Kotak Institutional Equities said that there is no clarity on the changes in the business model for YES Bank even as the clarity on the buyers emerges. The transaction does not change the business view of YES Bank, said the domestic brokerage firm.

"Such solutions are easier when the problem is unique to a single player and the macro environment is favorable, but we see that most lending cycles tend to affect several players simultaneously. Note that Yes Bank is yet to deliver profitability and growth ratios closer to the industry average," Kotak added with a 'sell' rating and a target price of Rs 17 on the stock.