Some bondholders of Yes Bank have filed a court petition against the state-led rescue deal that involves a writedown of their papers, potentially hindering a timely recovery at the beleaguered Indian lender.
Axis Trustee Services Ltd, representing several investors in the so-called AT1 bonds issued by Yes Bank, filed the petition in the Bombay high court on Monday against the RBI, Yes Bank and the government, according to a source and a document seen by Reuters.
The RBI took over Yes Bank’s board last week and imposed withdrawal limits on the lender, which, saddled with bad debts, failed to raise the capital it needs to stay above the mandated regulatory requirements.
On Friday, the central bank said it would work on a revival plan, as part of which bonds classified as additional tier-1 (AT1) capital will be written down “permanently, in full”. Equity holdings, though heavily diluted, will not been written down according to the plan.
That has sent shockwaves through the industry which fears the move will raise the borrowing costs for banks and make capital raising tougher in the near future.
AT1 bonds have quasi-equity characteristics and typically carry higher interest rates than more senior debt as investors accept the risk they can lose their investment at certain pre-agreed points if the funds are needed to bolster a struggling bank’s capital.
Yes Bank had about $1.2 billion in AT1 capital as of March 2019 under the Basel III framework, its annual report said. Investors included Nippon India Mutual Fund, Franklin Templeton, local fund houses and retail investors.
Lawyers for Axis Trustee said its clients had asked for a personal hearing with the central bank but filed the petition fearing the rescue plan will be notified before the hearing, according to the document.
The petition is set to be heard in court on March 11.
Icra warning
Domestic rating agency Icra, too, has warned that investors have total bets of over Rs 93,000 crore on the additional tier-I bonds in Indian banks and a complete write-down proposed in the Yes Bank restructuring may lead to risk aversion.
IndusInd Bank has earlier dropped a plan for the issue of the AT-1 bonds by deferring a board meet following the Yes Bank package by the RBI.
The proposal is “likely to increase the risk aversion of investors as the investors will factor in a higher probability of write-downs on these bonds”, Icra said in a report.
The appetite for future issuances and also the investor base for future issuances will take a beating because of the move, it said.
A total of Rs 93,669 crore of AT-1 bonds is outstanding as on date (Rs 84,574 excluding Yes Bank), of which Rs 39,315 crore will be in private banks (Rs 30,620 crore, excluding Yes Bank). The largest outstanding is with SBI at Rs 27,432 crore, followed by ICICI Bank at Rs 10,120 crore, while the immediate call option is coming up for Bank of Baroda on a Rs 400-crore bond, it said.