Bond Street offers new plan for YES Bank, keen to settle

Bond Street offers new plan for YES Bank, keen to settle thumbnail
Mumbai: A day after moving the court, many YES Bank bondholders have come up with a settlement offer that would involve a partial writedown of bonds as well as shares, and several mutual funds holding bonds participating in the infusion of equity capital to revive the private sector lender that was placed under moratorium by…

Mumbai: A day after moving the court, many YES Bank bondholders have come up with a settlement offer that would involve a partial writedown of bonds as well as shares, and several mutual funds holding bonds participating in the infusion of equity capital to revive the private sector lender that was placed under moratorium by the RBI last week.
The banking regulator and SBI, which is trying to rope in new investors in YES Bank, are yet to respond to the offer. The writ petition filed by Axis Trustee, representing the bondholders, will come up for hearing before the Bombay High Court on Wednesday.
The bondholders have proposed conversion of Rs 8,500 crore AT1 (or, additional tier 1) bonds into Rs 1,700-crore equity with existing stockholders of Yes Bank roughly ending up holding one share for every three equity shares they have. “A number of mutual funds stuck with AT1 bonds are willing to invest fresh shares that Yes Bank would issue under the reconstruction plan that SBI is leading,” a person aware of the proposal told ET.
“As per the offer, 255 crore shares of Yes will be split into 170 crore shares that would be held by bondholders while the balance 85 crore will be with existing shareholders. If the offer is accepted, it could result in bondholders owning majority in Yes Bank,” said the person.
The YES Bank stock (having a face value of Rs 2) traded at above Rs 20 on Monday. Bondholders are challenging the RBI’s plan, outlined in the draft scheme to reconstruct YES Bank, to completely write down the AT1 bonds. Axis’ petition is aimed at restraining the central government and RBI from hurriedly implementing the proposed scheme till the views of bond investors are properly heard. SBI, RBI and the government are under pressure to find a quick solution that would entail recapitalising YES Bank and preventing a flight of depositors once the moratorium on the bank is relaxed or lifted.
Bond investors — which include asset managers, finance companies, insurers, pension funds and wealthy retail investors — argue that the proposal to entirely write down the value of AT1 bonds is not only iniquitous but also against global best practices. According to the writ petition, the scheme gives preference to Yes Bank promoters — despite their mismanagement which resulted in huge losses to investors and stakeholders — over AT1 bondholders. Union of India, RBI, and Yes are respondents to the petition.
Yes Bank was placed under moratorium by RBI at 6 pm on March 5. On the evening of March 6, RBI announced a draft reconstruction scheme — asking depositors and creditors to share their views on the plan by March 9. A period of three days, according to bondholders, is too short a time for to present their views, particularly during the weekend before the Holi festival.
Though RBI has the power to write down AT1 bonds or convert them into common equity upon occurrence of certain trigger events, the petition argues that such securities are universally ranked superior to equity and a complete write-down of AT1 bonds is possible only when the bond issuer — Yes Bank — goes into liquidation. In other words, Yes Bank’s AT1 bonds can be written off only when the bank’s equity value has been eroded. But the scheme treats Yes Bank as a ‘going concern’ even though the RBI directive restricts customers of the bank from transferring or withdrawing money.
Nippon India MF is the largest investor in Yes Bank AT1bonds — holding Rs 2,400 crore of the Rs 8,415-crore bonds. Others include Templeton MF, UTI MF, Indiabulls, several individual investors, and the employees’ provident fund of India’s largest lender SBI which is trying to cobble together a deal to revive Yes.
As per the international capital rules for banks laid down under Basel III norms, the regulatory capital of banks comprises tier1and tier2 capital; the tier1 capital in turn is constituted of common equity and AT1 capital (or bonds, known as perpetual debt in market parlance). In India, the total outstanding AT1 issuance by various banks is more than Rs 91,000 crore, of which private banks account for Rs 38,000 crore as of end-February.
Commenting feature is disabled in your country/region.
Read More