Debt mutual funds have a collective exposure of Rs 2,783.02 crore to papers issued by Yes Bank, which includes both Additional Tier I bonds and non-convertible debentures (NCDs).
Debt schemes of mutual funds that have invested in the Additional Tier 1 (AT1) bonds issued by Yes Bank will ask Axis Trustees to write a letter to the Reserve Bank of India (RBI) asking them to convert the existing bonds to equity. Debt mutual funds have a collective exposure of Rs 2,783.02 crore to papers issued by Yes Bank, which includes both Additional Tier I bonds and non-convertible debentures (NCDs). According to market participants, Axis Trustees represent around Rs 8,500 crore in value of AT1 bonds. Apart from debt mutual funds, other bondholders of Yes Bank AT1 bonds include a housing finance company, high net worth individuals and retail investors among other set of investors. A senior fund manager with investments in AT1 bonds of Yes Bank said technically the offer document between Yes Bank and bondholders said they can write-down these bonds, but from a conventional point of view it is not right.
“The consequence of this issue will be that fund managers will stay away from investing in AT1 bonds of banks (both public sector and private) as going forward there is a risk of writing down the investments. So we are planning that if we can approach Axis Trustees and ask them to write a letter to RBI for the conversion from bonds to equity,” said the CEO of a leading fund house on condition of anonymity. He also added that if debt is converted to equity, at least funds will get some money from the bank. On Friday, RBI, in its draft ‘Yes Bank Reconstruction Scheme, 2020’, said, “the instruments qualifying as Additional Tier 1 capital, issued by the Yes Bank under Basel III framework, shall stand written down permanently, in full, with effect from the appointed date. This is in conformity with the extant regulations issued by the Reserve Bank of India based on the Basel framework.”Another fund manager with exposure in AT1 bonds of Yes Bank said, “as of now they have not decided the future course of action on the issue.”
“We are still contemplating whether to write a letter to RBI as an individual fund house or represent collectively as bond holders. Having said that going to court is not ruled out,” said head of fixed income of a fund house. Of the total exposure of Rs 2,783.02 crore to papers issued by Yes Bank to fund houses, Nippon India MF had investments worth Rs 1,770.24 crore as of January 2020. Apart from Nippon India MF, Franklin MF and UTI MF had exposure of Rs 482.92 crore and Rs 336.67 crore, respectively, revealed the 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. On Friday, after rating agency Icra downgraded various debt instruments worth Rs 52,611.70 crore to ICRA D, several of the fund house like UTI MF, Nippon India MF, Baroda MF and PGIM MF created segregation in portfolio in a few of their debt schemes.