EXECUTIVE SUMMARY. In Ian Fleming’s iconic James Bond movie franchise, the dapper 007 manages to get away, however precarious the situation. Similarly, in Yes Bank, one Additional Tier 1 Capital (AT1) perpetual bond issued under Basel III classification has escaped from being written down. In the wide publicity that the write down of Yes Bank’s AT1 bonds received, analysts and the business media have not highlighted how this particular AT1 bond issued under the Basel III framework survived to live another day. Yes Bank’s AT1 issue of Rs 2.8 bn, at a coupon of 10.5% per annum issued on December 31, 2013, has not been written down, as the Reserve Bank of India (RBI) notification linked to the Basel III guidelines at that time did not incorporate the clause that “the write down of any Common Equity Tier 1 capital shall not be required before the write-down of any AT1 instruments (including the Bonds)”. The letters of offer of the other two AT1 bonds which were written down, and which were issued on December 2016 and October 2017 respectively, incorporated this vital clause, as by then Basel III guidelines had evolved to incorporate this loss absorption measure.
Extract from Rs 2.8 bn Yes Bank AT1 Letter of Offer