63 Moons says Bombay HC has set aside YES Bank AT1 bond write off

AT1 bonds are a type of perpetual bonds that do not have any fixed maturity but offer relatively higher rates

Jignesh Shah-founded 63 Moons Technologies on January 20 said the Bombay High Court has set aside the order of YES Bank Administrator which had written down additional tier 1 (AT1) bonds.

"This will benefit all bondholders including 63 moons technologies which held bonds worth Rs 300 crore," the company said.

YES Bank had written off AT1 bonds worth Rs 8,415 crore as part of the bailout in March 2020. This irked YES Bank’s AT1 bondholders who moved the court to challenge the decision and get their money back.

AT1 bonds are a type of perpetual bonds that do not have any fixed maturity but offer relatively higher rates as those are considered quasi-equity instruments with a larger risk of investment.

The petitioners have been arguing that Yes Bank executives misrepresented the risks the AT1 bonds carry and sold these instruments as ‘Super FDs’  to existing FD holders promising higher return and safety of a deposit.

Yes Bank executives offered 9-9.5 percent return on these bonds and made them transfer substantially high amounts (in some cases Rs 1 crore to Rs 1.5 crore) to these instruments.

Retail investors allege that this was done without explaining the high risk associated with these bonds, especially the provision that says these bonds will be extinguished and capital foregone in the event of a financial failure of the bank.

Earlier, in its counter affidavit, RBI had used strong words discarding the claims by the petitioners.

The RBI had said the action for writing off has been rightly taken under the provisions of the contract between Yes Bank and AT-1 Bondholders and hence, there is no merit in the Petitioners contentions.

“The whole purpose of writing-off the AT-1 Bonds is to ensure that the capital infused by the public sector i.e. SBI and other investors should not be diluted. The AT-1 Bonds are a liability and hence, the same should be written off for the effective implementation of the Notified Scheme, which is made in the interest of the general public and to regain the confidence of the depositors,” the RBI said.

The RBI affidavit also said the courts must be slow in interfering and exercising judicial review of the decisions of a private sector bank which are contractual in nature by issuing a writ.

The affidavit also said: “Prior to the advent of the financial difficulties of Yes Bank, the Petitioner and other bondholders of Yes Bank have reaped high financial rewards on the AT-1 Bonds. The Petitioners cannot on one hand enjoy the benefit of a high interest rate/coupon rate by investing in such high-risk instrument and thereafter, in times of such failure, shift the onus of loss upon RBI”.

The petitioners have argued that the total write-down of AT1 bonds, treating these instruments below equity is not fair. Bondholders have invested a total of nearly Rs 94,000 crore in AT1 bonds issued by Indian banks, according to rating agency ICRA.