Bombay High Court Quashes Yes Bank's Call To Write Off Rs 8,300-Crore AT1 Bonds
Retail bondholders had filed this petition against Yes Bank's decision taken at the time of rescue in 2020.
The Bombay High Court has quashed Yes Bank Ltd.'s March 2020 decision to write off Rs 8,300 crore worth of additional tier-1 bonds, three people with direct knowledge of the matter told BQ Prime on condition of anonymity.
The high court's order on Friday came in a petition filed by a clutch of retail bondholders who were aggrieved by this decision.
Retail bondholders, representing about Rs 300 crore worth of AT1 investments, had filed this petition, according to the first person quoted above.
Yes Bank will surely appeal this at the Supreme Court in the next few weeks, after a detailed review of the high court's order, a fourth person with direct knowledge of the matter said, also on the condition of anonymity.
Since these bonds are eligible for write-off, the bank did it in consultation with the Reserve Bank of India as part of a reconstruction plan, the person quoted above said.
Queries emailed to Yes Bank didn't immediately elicit a response.
"This order reposes the public's faith in the banking system. If this clarity had not been provided, it would have created a mess for future bank reconstructions," Srijan Sinha, partner, Edictum Law & Co., which represented the bondholders, told BQ Prime. "This is a good precedent and the Bombay High Court has upheld the law."
In March 2020, the Reserve Bank of India had superseded the board of Yes Bank and appointed Prashant Kumar as administrator. This was done after Yes Bank's financial position had considerably deteriorated and a rescue plan had to be mounted. After getting approvals from the RBI and the union government, the administrator had implemented a reconstruction plan, where the AT-1 bonds had been written off from the lender's liabilities.
According to the first two people quoted above, the decision was taken on the basis of an information memorandum relating to the AT1 bonds and the RBI's guidelines on issuance of such securities.
However, Yes Bank had previously sold these bonds to retail investors, which was prohibited. The bondholders argued that such a sale meant that the bank could not dispose of these bonds and it should be liable to repay these dues. With the high court's decision, the bonds will now have to recorded in the bank's balance sheet again and the bondholders will have to repaid, the people quoted above said.
The high court has provided six weeks for Yes Bank to appeal the matter in the Supreme Court, all three people quoted above added. Unless high court order is set aside or stayed, Yes Bank will have to pay principal plus approximately 9% interest from the date of the write-off, the third of the three people quoted above said.
"In a major relief to 63 moons and others, the Bombay High Court today set aside the order of Yes Bank Administrator which had written down AT1 bonds of more than Rs 8,300 crore overnight leaving investors high and dry," a spokesperson for 63 Moons Technologies said in a statement.
"This will benefit all bond holders including 63 Moons Technologies which held bonds worth Rs 300 crore."
In October 2020, the Madras High Court had upheld the RBI's AT1 bonds circular in a similar petition filed by 63 Moons.
Yes Bank is in the midst of exiting the reconstruction scheme. The lender has sold bad loans worth Rs 48,000 crore to JC Flowers Asset Reconstruction Co. in a bid to cleanup its legacy bad loan book in one go.
It has also raised Rs 8,898 crore (about $1.1 billion) from Carlyle Group and Advent International. The bank will issue 10% stake each to Carlyle and Advent as part of this transaction. It had previously raised Rs 15,000 crore through a follow-on public offer in July 2020.
If Yes Bank is forced to repay these bonds, it may dent the last stages of the bank's turnaround.