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AT-1 bonds: Rift widens between bond holders and Yes Bank

The writing down of Yes Bank AT-1 bonds has been a matter of litigation as it is seen to unfairly confer benefits and enriches on existing shareholders. (Photo: Mint)Premium
The writing down of Yes Bank AT-1 bonds has been a matter of litigation as it is seen to unfairly confer benefits and enriches on existing shareholders. (Photo: Mint)

  • RBI on 5 March placed Yes Bank under a moratorium sensing the bank's near collapse and a systemic crisis
  • On 15 March, it had informed exchanges that the bank's AT-1 bonds worth 8,415 crore will be written down to zero

MUMBAI: The controversy around the write-off of the additional tier-one bonds (AT-1) by Yes Bank Ltd during the March quarter has continued unabated. In fact, the rift between the bondholders and the lender has now widened.

Axis Trustee Services Ltd, which represents several direct and indirect retail bondholders, has issued a notice to Yes Bank, alleging that the failed to make adequate disclosures about the instrument when it sought shareholder nod to raise funds. Yes Bank in turn has said trustees were creating hurdles in fund raising and smooth functioning of the bank.

On 15 March, the cash-strapped private lender had informed that the exchanges the bank's AT-1 bonds worth 8,415 crore will be written down to zero, in compliance globally accepted Basel-III norms that mandate writing down of such bonds in the wake of an emergency.

The bonds stand extinguished as on 14 March.

The move followed the Reserve Bank of India on 5 March placing Yes Bank under a moratorium sensing the bank's near collapse and a systemic crisis.

Fund houses including Nippon India Asset Management Co., Baroda Asset Management India Ltd, UTI Asset Management Co. Ltd, Franklin Templeton Asset Management (India) Pvt. Ltd, PGIM India Asset Management Pvt. Ltd have side-pocketed their exposure to Yes Bank.

Axis Trustee Services, the debenture trustee for the AT1 bondholders, had filed a case challenging the write-down in the Bombay high court. It obtained an order that subsequent action by the bank will be subject to orders of the court.

Yes Bank on 22 April had informed bourses that it was issuing a postal ballot notice to its shareholders seeking their nod to raise funds worth 5,000 crore.

Following this, Axis Trustee alleged that in the postal ballot notice the bank has failed to make full disclosures with respect to AT-1 bonds. The lender did not disclose that the write-offs have been challenged at the Bombay high court and if it orders the reversal of the write-off it could have implications on the equity holders, Axis Trustee said.

It said that Yes Bank only mentions that AT1 bonds have been written off in postal ballot notice.

"The adjudication of the Hon’ble Court on the decision to write down the AT-1 Bonds may have a bearing on all subsequent actions of the board of directors including activities such as raising additional capital on the basis that the AT-1 bonds have been written down. The part disclosure of the fact of extinguishment of the AT-1 Bonds while omitting the mention of pendency of legal proceedings amounts to insufficient disclosure," said Axis Trustee in the notice.

Yes Bank has countered this by saying the assertions are baseless and an attempt to create hurdles in the crucial fund raising exercise.

Despite no relief from the Bombay high court, trustees are engaging in this proxy correspondence to undermine and interfere in the smooth functioning of the bank, said Yes Bank.

Yes Bank further termed the petition filed by Axis Trustee as immaterial (under listing norms) as it is not-maintainable and devoid of any merit.

The matter did not end here, Axis Trustee in its final reply on 29 May said the bank has as an afterthought to rebut trustees' grievance of insufficient disclosures has placed reliance on "so called wide publicity of the litigation in order to imply that there is therefore no necessity for the adequate disclosures."

The writing down of Yes Bank AT-1 bonds has been a matter of litigation as it is seen to unfairly confers benefit and enriches on existing shareholders of the bank including erstwhile promoter Rana Kapoor, alleged to have indulged in fraudulent lending transactions.

Raising fresh equity is likely to enrich existing shareholders and is prejudicial to the interest of the bondholders, Axis Trustee has claimed.

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