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AT1 Bondholders of Yes Bank Ltd Come Up With New Rescue Plan

Professor of Financial Economics and Part-time Value Investor, Transfin.
Mar 12, 2020 7:07 AM 2 min read

Bondholders of Yes Bank Ltd propose conversion of ₹8,500cr Additional Tier 1 (AT1) bonds into ₹1,700cr equity as part of new rescue plan.




It's been a quiet a roller-coaster ride for Yes Bank Ltd in the last one week. The Government imposed a month-long moratorium on the distressed bank capping the withdrawal limit from Yes Bank at ₹50,000 ($679) for the next one month. 


The RBI in consultation with the Government has superseded the Board of Directors of Yes Bank for a period of 30 days, citing “serious deterioration in the financial position of the Bank."


Meanwhile, the RBI announced a rescue plan for Yes Bank, and as per the plan, India's largest lender SBI will take a 49% stake in Yes Bank.


In addition to this, the central bank said that it would work on a revival plan, as part of which AT1 bonds will be written down "permanently, in full." Equity holdings, though heavily diluted, were not to be written down according to the plan. However, this announcement did not bode well with the investor community and the industry, at large, considering that the move will raise borrowing costs for banks and make capital raising tougher in the near future.


No wonder then that some bondholders of Yes Bank filed a court petition against the plan on Monday. 


Latest Turn of Events

A day after, many Yes Bank bondholders have come up with a settlement offer, involving a partial writedown of bonds as well as shares. The plan will also see several mutual funds holding bonds participating in the infusion of equity capital to revive Yes Bank.


As per the offer, 255 crore shares of Yes Bank 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 a source.


What are AT1 bonds?

Additional Tier-1 bonds or AT1 bonds are a type of unsecured, perpetual bonds that banks issue to shore up their core capital base to meet the Basel-III norms.


AT1 bonds have quasi-equity characteristics and typically carry higher interest rates than more senior debt as investors accept the risk they can lose their investment at certain pre-agreed points if the funds are needed to bolster a struggling bank's capital.


Find a deep dive into all you wanted to know about AT-1 bonds - what AT1 bonds are, why are they important and why you should care here. 


Yes Bank share price today ended at ₹29.05 (+36.71%).



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