CARE Ratings on Tuesday downgraded Rana Kapoor-owned Morgan Credits, that is also a promoter entity of Yes Bank. The rating agency has lowered the rating of non-convertible debentures (NCDs) worth Rs 800 crore to BBB- from A-. CARE said that the revision in rating takes into account the fall in the stock price of the underlying shares of YES Bank which are held by Morgan Credit Private Limited (MCPL) or promoters and their relatives. The revised rating considers the moderation in cover due to fall in the stock price of the underlying shares of YES Bank, it added.
"The rating is based on the internal credit enhancement in the form of pledge of unencumbered listed shares of YES Bank held by MCPL or its promoters and their relatives in favour of the Debenture Trustee," CARE Ratings said in a statement. As of March 31, 2019, MCPL held 3.03 per cent stake in YES Bank. MCPL with its associate entities held 10.62 per cent stake in YES Bank, as on the date.
In August, the equity stake of Rana Kapoor and his late brother-in-law Ashok Kapur, who founded YES Bank, and that of two affiliates - YES Capital and Morgan Credit - has gone below the threshold of 10 per cent, which guaranteed them directorship rights. The former MD & CEO of YES Bank, Rana Kapoor and his affiliates held 9.64 per cent stake in the bank by August this year.
According to the rating firm, the rating is constrained by limited income since MCPL is an investment company with primary source of income being dividend from YES Bank. Currently, the dividend from YES Bank is MCPL's primary source of income. Hence, income could fluctuate in case of any deterioration in the performance of YES Bank, it said.
In the past four years, MCPL has received Rs 54.80 crore ( Rs 16.86 crore in FY18, Rs 14.05 crore in FY17, Rs 12.65 crore in FY16 and Rs 11.24 crore in FY15) as dividend income and in the current FY19, MCPL has received Rs 18.96 crore as dividend from YES Bank.
Edited by Chitranjan Kumar