Yes Bank’s AT1 Bonds May Be Converted Into Equity As Investors Oppose Write-Off

Bondholders’ investments in Yes Bank Ltd.’s additional tier-1 securities are likely to get converted to equity as part of a settlement plan between the lender and investors, two people with direct knowledge of the matter said.

A solution to the concerns of bondholders, who have an exposure to Rs 8,400 crore worth AT-1 bonds issued by Yes Bank, could be arrived at as early this week, the first of the two people quoted above said on the condition of anonymity.

The settlement plan follows the Reserve Bank of India’s draft proposal to fully write-off the AT-1 bonds on Yes Bank’s book last week. That came after the government placed the lender under month-long moratorium, the regulator superseded its board and capped withdrawals at Rs 50,000 citing deteriorating financial position.

The bondholders, who approached the Bombay High Court for an intervention in AT1 writeoff, did not participate in the hearing on Wednesday as they were negotiating with the banking regulator, State Bank of India and Yes Bank, the people quoted earlier said.

Axis Trustee Services, which represents bondholders, and Nippon India Mutual Fund had filed the petition on Monday. On Wednesday, Larsen & Toubro Ltd. and L&T Officers and Supervisory Staff Provident Fund too filed a writ petition against the RBI, Yes Bank and the Ministry of Finance on the AT-1 issue.

Yes Bank’s administrator Prashant Kumar, appointed by the RBI, is negotiating with large banks other than SBI to facilitate equity investments and liquidity infusion into the private sector lender, the first person said. SBI is set to pick up 49 percent equity stake in Yes Bank by infusing Rs 2,450 crore, according to the RBI’s draft resolution plan. Once the other banks are on board, Yes Bank could likely receive more capital.

The final investment proposals could be finalised this week as negotiations have reached advanced stages, the first person said. Some banks are also likely to extend lines of liquidity to Yes Bank to ensure it has enough funds to repay depositors once the moratorium is lifted. RBI is likely to provide Rs 8,000-9,000 crore worth liquidity to Yes Bank after it pledges securities worth Rs 10,000 crore. Similarly, SBI has also agreed to extend liquidity to the private sector lender, the first person said.