The Association of Mutual Funds in India (Amfi) has written a letter to the Reserve Bank of India (RBI) stating that equity and preference shares should be written down first before Additional Tier-1 (AT-1) bonds in the Yes Bank issue. A copy of this letter was also marked to the market regulator Securities and Exchange Board of India (Sebi).
Amfi CEO NS Venkatesh said, “As a industry we believe that write-down should first happen in equity followed by preference shares and then to the AT1 bonds. We have written a letter to RBI and marked a copy to the market regulator in this regard.” Amfi is the trade body for the mutual fund industry.
Out of total exposure of Rs2,783.02 crore to papers issued by Yes Bank by debt funds. Nippon India MF had investments worth Rs1,770.24 crore as on January 2020. Apart from Nippon India MF, Franklin MF and UTI MF had exposure of Rs482.92 crore and Rs336.67 crore, respectively, show data from Value Research.
Other fund houses that have an exposure to the bank include Kotak MF, Baroda MF, Aditya Birla Sun Life MF and PGIM MF among others. AT-1 bonds are debt instruments that do not have a fixed maturity and these instruments usually come with a call option post a certain number of years that allow the issuer to call back these instruments. These bonds are in news after RBI came out with a scheme of reconstruction for Yes Bank where it said the instruments qualifying as AT-1 capital issued by Yes Bank under Basel-III framework, shall stand written down permanently, in full, with effect from the appointed date.
“Under the waterfall structure AT1 bonds are placed above the equity and we have requested RBI to look into the matter. We have also informed RBI to convert these bonds to equity and we expect them to take a decision in next few days,”said a fund manager who has invested in AT1 bonds of Yes Bank. However, according to the legal experts, the RBI is well within its power to consider a write down of AT1 bonds.