InvestorQ : I was holding shares and some Tier 2 bonds in Lakshmi Vilas Bank? Can you tell me what happens to these investments after the DBS merger?
Arti Chavan made post

I was holding shares and some Tier 2 bonds in Lakshmi Vilas Bank? Can you tell me what happens to these investments after the DBS merger?

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Rutuja Nigam answered.
6 months ago
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I am afraid the news may not be too good for you because the bank is writing off the total equity and the Tier 2 bonds so the investors would virtually end up getting nothing on these investments. IT does look like a raw deal but that is what it is.

On the one hand, the depositors of LVB are happen because even the moratorium ended in just 10 days as against the 30 day freeze put originally. However, investors in LVB did not share similar sentiments as investment is virtually wiped out.

At this time I am only talking about equity and Tier 2 bond investors like you. In both cases, you do get a raw deal. Let me talk about your equity investment first. The RBI, as part of the rescue plan, will write off the entire equity and free reserves against the negative net worth of the bank. So effectively, there is nothing much left after that. In short, your shares will be worthless paper now.

In addition, the RBI also instructed LVB to write down Rs.320 crore of Tier-2 bonds out of the total Rs.360 crore of bonds issued. This is somewhat like Yes Bank where AT1 bonds worth Rs.8,000 crore were written off totally. These Tier-2 bonds are part of Tier-2 capital permitted by the Basel Committee with risk. Now that risk has come home to roost.

If you have read the fine print of Tier 2 bonds, they contain a specific clause that in the event of a bank becoming unviable such bonds issued can be fully written off under Section 45 of the Act. That has been done so on both fronts it is not too encouraging.

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