Yes Bank bondholders step up pressure for restoration of ₹8,415 crore AT1 bonds

MUMBAI: The Yes Bank AT1 Bond Holders Association has stepped up pressure on the lender to restore ₹8,415 crore of written-off additional tier-1 (AT1) bonds, demanding a time-bound plan after a deadline set by the debenture trustee expired. It has also sought clarity on unpaid coupons and the bank's responsibility towards individual investors who bought the bonds through its distribution network.

In a 3 November letter reviewed by Mint, the association gave Yes Bank three calendar days to spell out a restoration plan and clarify its position on outstanding coupons. It separately asked Axis Trustee Services Ltd (ATSL) to recognise it as the representative body of individual bondholders and put restoration, coupons and enforcement on the agenda of the 16 November bondholders' meeting.

The demands follow ATSL's 28 October notice giving Yes Bank three working days to restore the bonds in its books, reverse write-off entries with the depositories and enable trading. That deadline has passed, prompting the association to seek an update on the bank's compliance.

Yes Bank and ATSL did not immediately respond to emailed queries.

Under scrutiny

In its letter to managing director and chief executive Vinay M. Tonse, the association argued that Yes Bank bore particular responsibility towards investors, many of whom were existing customers.

“Most of these were your customers. You knew them, held their savings and sold them these bonds,” it wrote.

The association's letter follows the Supreme Court's 15 October ruling, which dismissed appeals by Yes Bank, the Reserve Bank of India (RBI) and the Centre and upheld a Bombay High Court order that the bank administrator had no authority to write down the bonds as part of the lender's 2020 rescue.

Citing the Securities and Exchange Board of India's (Sebi) adjudication proceedings, which drew on information supplied by the bank, the association said 1,311 of the 1,346 individual investors who bought the bonds were existing Yes Bank customers. Of these, 789 held fixed deposits and 277 closed them prematurely to invest in the bonds.

The proceedings “brought to light the role of relationship-manager targets and incentives in driving distribution, alongside deficiencies in the communication and understanding of the risks associated with these instruments,” the association said.

The Bombay High Court's January 2023 judgment had also recorded bondholders' submissions about relationship managers selling the instruments to fixed-deposit holders. The association said the bonds were marketed as a “Super FD”, but offered only half a percentage point more than existing deposits. It called the bank's claim that the interest was “substantially higher” “baseless and inaccurate”.

Citing paragraph 79 of the Supreme Court judgment, the association said the court had described AT1 bonds as high-risk and observed that Yes Bank actively offered them to individual investors in violation of RBI's master circular.

It placed the sales against the backdrop of the RBI's supersession of the bank's board in March 2020 and the bank's own disclosures of whistleblower complaints and investigations involving its former leadership.

“Individuals who trusted the Bank with their savings should not be left to bear the consequences of institutional failures while the Bank’s response to a decisive judicial outcome remains uncertain,” it wrote.

Coupon payments remain contested

The association has challenged ATSL's handling of the matter, saying its members had invested more than ₹160 crore in the bonds, using accumulated retirement savings, including provident fund proceeds, gratuity and post-retirement savings.

In an earlier exchange filing, Yes Bank said it retains contractual discretion over coupon payments under the Information Memoranda. The association, however, argued that “the contractual terms cannot be partially used in one’s favour”.

It has asked the bank to clarify whether the 9% coupon due on 19 October is payable. It has also sought a series-wise reconciliation of coupons since March 2020, including the capital ratios and board minutes relied upon by the bank, as well as its position on the 9.5% coupon due on 23 December.

“We expect a dated implementation plan, not another statement that the matter is being evaluated,” the association said.

The association has also asked the bank to confirm whether any stay on the Supreme Court ruling exists, identify the executive responsible for implementation and explain how discrepancies in investor records and holdings will be resolved. It has reserved the right to approach regulators and courts.

Trustee faces questions

The association has challenged ATSL's handling of the matter, saying its members invested more than ₹160 crore in the bonds, using mostly retirement savings, including provident fund proceeds and gratuity.

As trustee, ATSL “cannot discharge its responsibilities merely by exchanging correspondence with the issuer and other market participants,” it wrote.

It has asked the trustee to explain its engagement with individual bondholders since March 2020, whether Yes Bank has substantively answered its coupon query and whether ATSL has sought a quantified reconciliation for each bond series. It has also sought a senior officer as its point of contact and the 16 November meeting agenda in advance

It wants restoration and coupon payments pursued separately, so that progress on one does not delay the other. Seeking a response within seven calendar days, it said it “will not regard general assurances of monitoring or appropriate action as a substitute for formal engagement, a clear implementation plan and concrete steps towards recovery.”

Reinstating the principal would reduce Yes Bank's common equity tier-1 ratio by about 240 basis points to around 11.4% from 13.7% as of 30 September, Mint reported on 30 October.