Yes Bank challenges Bombay High Court ruling on AT1 bonds write off

For improperly marketing AT-1 bonds, market regulator Sebi fined Yes Bank founder Rana Kapoor Rs 2 million in September 2022. The bank and specific personnel are accused of failing to disclose the risk to investors while offering the AT-1 (Additional Tier-1) bonds for sale in the secondary market. Beginning in 2016, sales of AT-1 bonds continued till 2019.The Bombay High Court had allowed the bondholders’ petition against the write-off and the decision to write off the AT-1 bonds has been quashed, said Srijan Sinha, an advocate who appeared on behalf of the association of individual bondholders.
A class of bond issued by banks is called an AT-1 bond. These bonds are high-yield securities with loss-absorbing characteristics, which enables a lender to write them off if their capital falls below a certain threshold, as was the case in Yes Bank’s instance.
Source: CNBC-TV18Following the Yes Bank debacle, the capital markets regulator Sebi decreed that AT-1 bonds could only be issued to institutional investors in minimum ticket quantities of 1 crore and higher. However, older AT-1 bond tranches continue to trade in the market in smaller lot sizes of 10 lakh.In March 2020, Yes Bank was saved by a reorganisation that included writing down the AT-1 bonds. While equity holders did not see a comparable write-down, 75% of their shares were locked for three years.
In order to prevent the Yes Bank lender from going down, the Reserve Bank of India had instructed the administrator to write off these bonds as part of a restructuring plan under the direction of the State Bank of India.According to a BQ Prime report, Yes Bank has contended that its administrator, chosen by the central bank, had the authority to fully write down AT-1 bonds worth $8,415 crore on March 14, 2020.The Bombay High Court last month decided that there were procedural errors in the decision to write down the bonds without delving into the merits of the bonds’ nature.However, the court granted relief to bondholders who had an exposure to these bonds of $8,450 crore.According to the court, the administrator lacked the authority to write off the bonds because it was not included in the final restructuring plan.It appears that administrator exceeded his powers and authority in writing off AT-1 bonds after the bank was reconstructed on March 13, 2020, according to the Bombay HC orderIn many court cases, individual and institutional bondholders claimed that the bonds had been missold and could not be written off whereas equity could.
The Bombay High Court had allowed the bondholders’ petition against the write-off and the decision to write off the AT-1 bonds has been quashed, said Srijan Sinha, an advocate who appeared on behalf of the association of individual bondholders.A type of bond sold by banks is called an AT-1 bond. These bonds are high-yield securities with loss-absorbing characteristics, which enables a lender to write them off if their capital falls below a certain threshold, as was the case in Yes Bank’s instance.
Following the Yes Bank debacle, the capital markets regulator Sebi decreed that AT-1 bonds could only be issued to institutional investors in minimum ticket quantities of 1 crore and higher. However, older AT-1 bond tranches continue to trade in the market in lower lot sizes of 10 lakh.
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