MUMBAI – Some bondholders of Yes Bank (YESB.NS) have filed a court petition against a state-led rescue deal that involves a writedown of their papers, potentially hindering a timely recovery at the beleaguered Indian lender.
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Axis Trustee Services Ltd, representing several investors in so-called AT1 bonds issued by Yes Bank, filed the petition in the Bombay High Court on Monday against the Reserve Bank of India (RBI), Yes Bank and the government, according to a source and a document seen by Reuters.
RBI took over Yes Bank’s board last week and imposed withdrawal limits on the lender, which, saddled with bad debts, failed to raise the capital it needs to stay above mandated regulatory requirements.
On Friday, the central bank said it would work on a revival plan, as part of which bonds classified as Additional Tier 1 (AT1) capital will be written down “permanently, in full.” Equity holdings, though heavily diluted, will not been written down according to the plan.
That has sent shockwaves through the industry which fears the move will raise borrowing costs for banks and make capital raising tougher in the near future.
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.
Yes Bank had about 88 billion rupees ($1.2 billion) in AT1 capital as of March 2019 under the Basel III framework, its annual report said. Investors included Nippon India Mutual Fund, Franklin Templeton, local fund houses and retail investors.
Lawyers for Axis Trustee said their clients had asked for a personal hearing with the central bank but filed the petition fearing the rescue plan will be notified before the hearing, according to the document.
The petition is set to be heard in court on March 11.
March 10, 2020
Reporting by Abhirup Roy; editing by David EvansOur Standards:The Thomson Reuters Trust Principles.