ABSTRACT
In August 2020, Rajendra Sharma, Treasury Head of one of the large Information Technology (IT) services firms, was summoned by the board of directors to make a detailed presentation on the status of Rs 300 crore of surplus cash invested in Yes Bank’ Additional Tier-1 (AT-1) bonds and similar investments made in AT-1 bonds of other banks. RBI sent shockwaves among AT-1 bondholders in its March 2020 announcement of a reconstruction scheme for Yes Bank. RBI announced writing off of Rs 8,415 crore of AT-1 bonds issued by the bank. However, shareholders were allowed to continue with their shares with three-year lock-in for 75% of shares. Several investors filed petitions in various courts on two grounds: first, going by the hierarchy of claims, the lender's claim was always superior to owners. Therefore, the cost of debt was lower than the cost of equity. However, writing off AT-1 bonds and allowing shareholders to hold on to their ownership rights with potential upside was the case of reversing the hierarchy of capital providers. Second, there was a miss-selling angle; many petitions claimed that the bonds were sold as “Super Fixed Deposits” offering 9/9.5% yield against long-tenured Fixed Deposits offering 7/7.5% at the time of the issue of the bonds. 1 Axis Trustees representing investors added the miss-selling part to their petition filed in Bombay High Court.
