“On previously due, unpaid interest payout, as per the regulation, it is the bank’s discretion for coupon payment. There is no cumulative nature of coupon payment, and in a financial year when the bank is in losses, the bank cannot pay the coupon ,” he said.
“These are perpetual bonds, and it is not mandatory to exercise the call option,” he added.
In December 2016, the bank raised Rs 3000 crore through AT-1 bonds offering a coupon of 9.5% and later, in October 2017 it raised Rs 5415 crore through AT-1 bonds, offering 9% coupon.
The AT-1 bonds are high-risk instruments and can be write-off the bonds at pre-specified triggers.
The RBI counsel argued that by virtue of this provision, the bonds could be written off when the moratorium was placed on the bank in March 2020, without needing consent from bondholders. The RBI also informed the court the objective of writing off the bonds was to protect two lakh depositors.
“The bondholders, having enjoyed higher coupon/interest year after year, cannot turn around and in disregard of the contractual provisions,” argued RBI’s counsel according to the court order. The high court, however, pointed out that as per the terms of the bonds, “claims of the bondholders in the bonds shall be superior to the claims of the investors in equity shares …… and subordinate to the claims of depositors.”
Sanjay Sinha, former MD& CEO, Axis Trustee, who is the trustee for AT-1 bonds, said, “It brings into fore the sanctity of AT-1 bonds. The question is whether investors want to invest in this instrument after Yes Bank arbitrarily gave a junior status over equity.”
However, if the Supreme Court upholds the order passed by the Bombay High Court, Yes Bank may be willing to enter a settlement with the bondholders.
Bondholders claim that the bonds were mis-sold to them by the senior executives of Yes Bank, which was then led by Rana Kapoor. Sebi imposed a Rs 2 crore fine on Kapoor while declaring that selling of bonds to individuals was illegal.