Axis Trustee Services has served a legal notice on YES Bank for alleged inadequate disclosure to investors on the ongoing litigation in the Bombay High Court over cancellation of additional tier-1 (AT-1) bonds.

The debenture trustee for YES Bank’s AT-1 bonds has also blamed the interim management of YES Bank for favouring few investor banks at the cost of bondholders.

YES Bank did not respond to a questionnaire sent by BusinessLine

YES Bank is in the process of seeking shareholders’ approval to raise ₹10,000-12,000 crore through various options, including follow-on public offer, rights issue or qualified institutional placement.

The bank has to raise at least ₹4,000 crore to meet the regulatory capital requirement this year.

YES Bank has sought shareholders’ approval through postal ballot to raise fresh capital.

Axis Trustee Services, in the legal notice accessed by BusinessLine, has claimed that YES Bank “is engaging in misleading information by failing to provide complete disclosures on pending legal proceedings and the risks involved in making investments in the bank”.

Several bondholders have complained that the Postal Ballot Notice and the Explanatory Statement are silent on the disclosure on the pending Writ Petition and the orders passed therein, it said.

The adjudication of the court on write-down of the bonds may have a bearing on all subsequent actions of the Board of Directors, including additional capital-raising.

The part disclosure on extinguishing AT-1 bonds without mentioning the ongoing legal proceedings and the interim court orders amounts to insufficient disclosure, said the legal notice marked also to RBI, SEBI and SBI (the anchor investor of YES Bank).

The write-down of AT-1 bonds has been subjected to litigation on the basis that “it unfairly confers benefits and enriches the existing shareholders of the bank including the promoters who are alleged to have indulged in fraudulent lending transactions”.

Raising fresh equity is likely to enrich the existing shareholders further and is prejudicial to the interest of the bondholders, it said.

Even while the court is hearing the petition, YES Bank had issued equity shares of ₹10 each at its face value to select private sector banks while the share prices went up from about ₹25 a share on March 13 to ₹60 on March 18.

The banks which were allotted shares at a concessional price sold a portion of their investment and made a killing at the cost of the AT-1 bondholders, it said.

Pointing to the Bombay High Court order that states all steps taken by YES Bank will be subject to further orders passed by it, Axis Trustee Services said YES Bank has rated the equity holders, including the promoters, as superior to the bondholders, and written down the entire value of the AT-1 bonds worth ₹8,415 crore in order to strengthen its common equity tier (CET) ratio.

Further, it said the profit reported in the fourth quarter due to the illegal writing down of the AT-I bonds has benefitted the incoming anchor investors of the bank, who earned huge profits in less than two months on the sale of their stakes in the bank.

Published on June 01, 2020

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