Yes Bank’s existing shareholders could face the financial burden of its ₹8,400 crore Additional Tier-1 (AT-1) bond liability if new investor Sumitomo Mitsui Banking Corporation (SMBC) is protected from liabilities arising before its investment, Senior Advocate HP Ranina said.
The Supreme Court has upheld the Bombay High Court’s decision to overturn Yes Bank’s 2020 write-off of AT-1 bonds, which was part of the bank’s rescue and restructuring exercise. The ruling means the bank will have to honour the bonds at the applicable coupon rates of 9.5% and 9%.
“If Sumitomo is exempt from the past liability, existing shareholders will have to bear the burden,” Ranina said. He added that the bank would need to raise capital or launch a rights issue, through which existing shareholders can buy additional shares, to meet the shortfall.
Yes Bank shares closed at ₹18.12 on the NSE at 3.30 pm and have fallen more than 22% over the past year.
How could the ruling affect Yes Bank shareholders?
Deven Choksey, managing director of DRChoksey Finserv Private, said SMBC’s presence could help Yes Bank manage the financial impact of the ruling. SMBC recently acquired a 20% stake in the lender, making the question of how the liability will be handled important for investors.
The stock closed at ₹18.12 at 3:30 pm on the NSE and has declined more than 22% over the past year.However, Choksey cautioned that the stock could remain under pressure in the near term as investors assess the implications of the judgment.
Ranina also questioned why Yes Bank had not made adequate provisions for the potential liability while the case was being heard. He said the bank should not have assumed that the courts would rule in its favour.
The ruling highlights the financial risks companies face when they contest liabilities in court. Even when a company believes it has a strong legal case, it may need to prepare for the possibility of an adverse judgment.
For investors, the key questions are how Yes Bank will meet the ₹8,400 crore obligation, whether it will need to raise additional capital and whether SMBC will provide any support.
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Yes Bank faces capital pressure after AT-1 bond ruling; Sumitomo could offer support, say experts