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Mumbai: Several institutional investors are planning to come together to oppose the central bank’s proposal to write down Yes Bank’s perpetual bonds — tier-I bonds in market parlance — that total more than ₹8,400 crore.
Investors of these outstanding bonds are discussing the possibility of advising the bond trustee to legally challenge the write-down proposal, sources with direct knowledge of the matter told ET.
Their main contention is that tier-I bonds are senior to equity, and cannot be written down without reducing equity.
Fearing such a move even before the central bank announced the reconstruction proposal, trustee Axis Bank said in a letter dated March 4 to Yes Bank that, “the debenture holders are extremely apprehensive the issuer bank will not be in a position to honour their obligations to the holders of AT-1 bonds and may act prejudicial to their interests.”
According to an institutional investor, the information memorandum of the perpetual bonds says it cannot be written down unless equity is also reduced.
“Debt cannot be junior to equity we hope it is not there in the final scheme,” the person said.
Investors believe that the cost of issuing similar bonds would climb by as much as 200 basis points from previous levels.
“This is the first time investors got a knock on perpetual bonds in India,” said Ajay Manglunia, managing director – fixed income, JM Financial.
“It would hit hard the primary issuance market as risk premium may shoot up to 200 basis points.”
“Unless the draft restructuring scheme changes the particular proposal, the perpetual bond market is likely to turn choosy,” he said.
Investors in Yes Bank perpetual bonds, compliant with Basel III norms, a global standard for banks, stand to lose their money if the RBI draft restructuring scheme is approved.
“The instruments… shall stand written down permanently, in full, with effect from the appointed date,” the central bank said.
“No account holder shall be entitled to get any compensation from the reconstructed bank on account of the changes occurred in the reconstructed bank by virtue of the scheme.”
Perpetual bonds are a quasi-debt instrument where there is no fixed maturity but normally they have a “call option” after a stipulated period, giving an exit route for investors.
Yes Bank perpetual bonds have not been traded in the past few days, with a particular perpetual series falling under the said category yielding 19.11% on March 2.
In the past two months, these bonds traded as high as 38%.
Stock Market
FIs to oppose write-down of YES Bank's perpetual bonds
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