Writing down bonds

Fund managers should not have ignored AT-1 bond risks

Asset management companies holding additional tier-I (AT-1) bonds of YES Bank are reportedly negotiating a deal to avoid a 100 per cent haircut by converting their holding into equity. According to the Reserve Bank of India’s (RBI’s) draft reconstruction plan for YES Bank, the AT-1 capital instruments under the Basel III framework are to be fully written down. The asset managers first decided to approach the Bombay High Court but are now seeking to minimise the damage. Meanwhile, Larsen & Toubro, which has exposure to YES Bank’s AT-1 bonds, has approached the court.
 
The reason why the asset managers