Yes Bank withdraws $500m dollar bond amid rising yield demands
India’s Yes Bank has abandoned a $500m US dollar bond sale as a regulatory deadline triggers a funding rush that has driven investor yield demands beyond acceptable levels for mid-sized lenders.
Yes Bank has cancelled its plan to issue approximately $500m in three-year US dollar bonds. The lender, which is 24.9% owned by Japan’s Sumitomo Mitsui Banking Corporation, pulled the deal after investors demanded significantly higher yields. The bank had only appointed bankers to arrange the proposed issue last week.
Merchant bankers reported that investors sought yields 30 to 40 basis points above normal levels. This severe pricing pressure emerges just as multiple Indian lenders simultaneously rush to tap the dollar debt market. The sudden congestion has fundamentally altered the cost of offshore borrowing for the sector.
The scramble for capital is directly driven by the Reserve Bank of India bringing forward the closure of its discounted dollar deposit window. This regulatory scheme officially ends on August 31. Banks intend to use their bond proceeds to provide leverage to customers depositing funds under this specific program.
Research firm CreditSights had pegged the fair value for the proposed notes at a spread of 170 to 180 basis points over US Treasuries, implying a yield of roughly 6.035% to 6.135%. The firm noted that Axis Bank was the closest comparable, but actual investor demands pushed the required spread to around 200 basis points over Treasuries.
Yes Bank has not accessed the dollar debt market since 2018, when it successfully raised $600m through five-year securities. Investor confidence in the institution was previously dented when the lender wrote off more than INR84bn, or $880.32m, of perpetual bonds in the domestic market.
The pricing squeeze is now affecting other mid-sized private-sector lenders across the country. Federal Bank and RBL Bank have also shelved their planned benchmark $500m dollar bond issuances, according to the bankers tracking the deals.
Market participants note that banks are facing a highly compressed timeline to complete the mandatory disclosures required for public bond offerings. Meanwhile, private placements have become increasingly expensive as an alternative. As a direct result, lenders are broadly opting to defer their planned offshore borrowings for now.
