NEW DELHI: The Bombay High Court, in an oral pronouncement on Friday, quashed the order of YES Bank Administrator, which had written down Additional Tier-1 (AT1) bonds of more than Rs 8,300 crore overnight, leaving investors high and dry.
“This will benefit all bondholders, including 63 moons technologies, which held bonds worth Rs 300 crore,” said 63 moons technologies in a statement, on Friday. The bonds were written off as part of a restructuring plan to rescue YES Bank in March 2020. Equity holders didn’t face a similar write-down, but 75% of their shares were subject to lock-in for three years.
AT-1 bonds are high-yield securities that typically have loss-absorbing features, meaning they can be written down if a lender’s capital falls below a crucial level. This feature was invoked in case of YES Bank. Investors, including institutional and individuals, had invested as much as `8,415 crore in YES Bank’s AT-1 bonds.
Individual and institutional bondholders had filed several petitions in the court, arguing the bonds were mis-sold. Market regular Sebi had imposed a penalty of Rs 2 crore on YES Bank founder Rana Kapoor in September 2022 for mis-spelling AT-1 bonds. It was alleged the bank and certain officials didn’t inform investors of the risk involved while selling the AT-1 bonds in the secondary market. The sale of AT-1 bonds started in 2016 and continued till 2019.
YES Bank, whose board of directors was reconstituted and fresh capital was infused in 2020, had issued AT-1 bonds in the nature of debentures in December 2013, December 2016 and October 2017. These bonds were written down as part of reviving the bank in 2020.
In 2020, YES Bank cited RBI’s Basel III capital regulations, which says if authorities decide to reconstitute a bank or amalgamate it with any other lender under Section 45 of the Banking Regulation Act, 1949, the bank will be deemed as non-viable or approaching non-viability. In such a case, the trigger for AT-1 write-down instruments will be activated, it said.
AT-1 bonds can be written down
Additional Tier-1 bonds are high-yield securities that typically have loss-absorbing features, meaning they can be written down if a lender’s capital falls below a crucial level. This feature was invoked in case of YES Bank