If the Supreme Court upholds the Bombay High Court order that quashed the decision to write off Yes Bank bonds worth Rs 8,415 crore, the lender’s Additional Tier I (AT-1) bondholders could get shares of the bank, Economic Times reported, quoting sources privy to the development.
AT-1 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.
Additional tier-1 bonds worth Rs 8,415 crore were written down as part of Yes Bank’s reconstruction scheme in March 2020. The bonds included securities issued to retail and institutional investors. The move punched a big hole in the pockets of several retail investors, as, for several of whom (especially retirees), these were life savings.
Also read: 63 Moons says Bombay HC has set aside YES Bank AT1 bond write off
The Bombay HC order passed on January 20 came as a ray of hope for the Yes Bank AT-1 bondholders, but the private lender has already announced plans to move the apex court of the country.
Yes Bank CEO Prashant Kumar has said that the bank will challenge the order stating that it cannot be compelled to “pay interest on or redeem its AT- 1 bonds”. Kumar said: “in the worst cases scenario the common equity tier one capital of the bank would come down. However, the capital adequacy would be maintained as the AT-1 capital increases.”
Also read: MC Explains | The Yes Bank AT1 bond and why Bombay High Court refused a write-off
According to the ET report, this could happen in case the Supreme Court upholds the HC order.
The other solution would be to compensate bondholders. Yes Bank AT-1 bondholders have already sought compensation in the form of Yes Bank shares instead of bonds; a step in this direction will also prevent the lender’s equity capital from eroding. However, analysts are of the opinion that this would dilute shareholding.
Also read: Yes Bank’s AT-1 bonds legal battle may not give closure to bond holders
