InvestorQ : Can you tell me about the latest note circulated by Nomura on the mutual fund holdings in the controversial AT-1 bonds?
diksha shah made post

Can you tell me about the latest note circulated by Nomura on the mutual fund holdings in the controversial AT-1 bonds?

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swati Bakhda answered.
1 month ago
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In a recent note circulated by Nomura as part of its India research, the brokerage house has highlighted that Indian Mutual funds in aggregate may be holding close to 20% of all AT-1 and Tier-2 bonds issued by banks. Just to underline, these are quasi-equity bonds which are issued banks and carry a very high degree of risk. In the recent cases of Yes Bank and LVB, we saw the banks forfeiting the AT-1 bond issues resulting in huge losses to investors.

As per the estimates put out by Nomura, the total value of the combined outstanding AT-1 bonds and Tier-2 bonds amount to Rs.350,000 crore. Out of this total issue of bonds, Indian mutual funds are estimated to be holding nearly 20% of approximately Rs.70,000 crore worth of these bonds in their debt fund portfolios. This is apparently equally distributed between AT-1 bonds and Tier-2 bonds, if one compares this with the CRISIL estimates.

This data assumes specific importance in the light of the objections raised by the banks and the mutual funds to the proposed change in rules by SEBI pertaining to the valuation and exposure to AT1 bonds. The regulator wanted to prescribe a mandatory 100-year tenure for AT-1 bonds, which would have led to massive provisions. SEBI also wants to restrict exposure of any particular AMC to a bond to not more than 10% of AUM to limit risk.

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