Yes Bank: AT-1 Bond write-down challenge

Nippon Mutual Fund and Axis Trustee, the holders of YES Bank’s additional tier-1 (AT-1) capital bonds worth Rs 8,400 crore have filed petitions against the decision to write-down the said bonds under reconstruction plan.

They bond holders are seeking remedy against the Reserve Bank’s (RBI’s) decision to cancel the bonds as part of reconstruction plan.

The he central government, represented by the department of financial services and YES Bank, and the RBI have been included in the petition.

The main contention of Axis Trustee is that when YES Bank is treated as a going concern, AT-1 bonds issued by the bank cannot stand extinguished and ought to remain as active instruments.

The petition also puts forth that AT-1 bonds cannot be treated inferior or subordinate to equity and that this is contradiction to global best practices where AT-1 bonds are treated superior to equity.

Axis Trustee believes a complete write-down of AT-1 bonds while retaining the value for equity holders is against the principles of justice and prevalent best practices.

Under Basel-III norms and international best practices, AT-1 bonds can be written off only when the value of equity of YES Bank is completely eroded.

AT-1 bonds of YES Bank have been subscribed by retail and institutional investors, including mutual funds, and hence writing off such an instrument will shake the confidence of these investors.

Axis Trustee seeks for an equitable treatment of AT-1 bonds and equity shares.

All in all unless the matter is resolved in court, most funds want a redressal on this issue as otherwise it will result in massive losses for mutual funds holding these AT1 bonds

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