Why are Additional Tier 1 bonds of Yes Bank worse than Equity? Because of two things: Coupon discretion and Loss absorption. (Yet another thread)
Coupons (interest payments) can be cancelled and may not be demanded later. See this in a UBI Tier 1 Basel III bond offer doc: 
Loss absorption: Bank can refuse to pay principal also, if RBI decides that there is a Point of Non Viability (PONV)
And most importantly, the AT1 capital can be written off BEFORE any equity capital is hurt.
So, as I've said, Additional Tier 1 Basel III bonds are worse than equity.
Mutual funds have bought them showing that they are like bonds. But they are not, and everyone knew that and no one assumed there will be a PONV event.
Mutual funds have bought them showing that they are like bonds. But they are not, and everyone knew that and no one assumed there will be a PONV event.
It's like people writing software saying you can't have negative growth rates for housing prices. And then wonder why the models were wrong.
Btw, there was a near-default recently on United Bank I think, but RBI or Govt forced them to buyback the bonds.
Btw, there was a near-default recently on United Bank I think, but RBI or Govt forced them to buyback the bonds.
Why? Because they thought if these bonds default, there will be a major problem in that no one else will be able to sell AT1 bonds and the current bonds will see a fire sale etc.
That was unnecessary mollycoddling (these are sophisticated investors who can read).
That was unnecessary mollycoddling (these are sophisticated investors who can read).
Now, it's clear that these Tier 1 Basel 3 bonds are quasi equity instruments.
Meanwhile, if you're willing to sell HDFC Bank AT1 bonds at a 15% yield, I might consider taking them off your hands.
Meanwhile, if you're willing to sell HDFC Bank AT1 bonds at a 15% yield, I might consider taking them off your hands.
