Like promoters, let us gain from equity: YES Bank AT-1 bondholders in court

The additional tier-1 (AT-1) bondholders of YES Bank on Tuesday presented their initial arguments before the Bombay High Court (HC), questioning why they were not being allowed to benefit from equity upside after the bank’s reconstruction scheme. Existing promoters who held 8 per cent stake will be benefiting from YES Bank’s reconstitution.

Along with the institutional bondholders, an individual investor — a cancer survivor — also moved the court to seek relief on Rs 10 crore exposure to AT-1 bonds. “Why should promoters benefit from equity investment as the bank becomes viable and we are at zero,” said senior advocate Janak Dwarkadas, who argued on behalf of Axis Trustee, the debenture trustee for majority of bondholders.

He said the bondholders were also willing to adhere to lock-in requirement of 36 months stipulated for equity investors. He also cited the bank’s shares had already made over 200 per cent gains following the notification of moratorium and draft reconstruction scheme proposed by the Reserve Bank of India (RBI).

Bondholders re-iterated that they were willing to take 70-80 per cent markdown on their outstanding bond exposure of Rs 8,415 crore, and sought these bonds to be converted into equity. One of the arguments was  while the RBI scheme was introduced in larger interest of public, it was treating one segment unfairly. “Investors have put their savings in mutual funds, which are exposed to these bonds. There are also provident and pension funds that have exposures,” Dwarkadas said. “These bonds were sold by YES Bank employees to my client,” said one of the advocates, representing the individual investor with exposure to bank’s AT-1 bonds.

Further, Dwarkadas pointed out it was not YES Bank, but the RBI, which had the discretionary powers to either write down the AT-1 bonds or allow equity conversion. However, it opted for the latter.  He also punched holes on YES Bank administrator’s decision to formalise the write-down after the commencement of the scheme, i.e. on March 13. 

He cited from government’s gazette notification on the schemes that stated unless otherwise expressly provided, “all contracts, deeds, bonds ... shall be effective to the extent and in the same manner, as was applicable before such commencement”.