Yes Bank Ltd has chosen JC Flowers Asset Reconstruction Co. as its joint venture partner to offload ₹49,000 crore of bad loans as the private lender seeks to clean up its books and raise capital to fund credit growth.
JC Flowers has offered ₹12,107 crore against the bad loan book, ensuring a 25% recovery, two people familiar with the development said. Yes Bank had set Wednesday as the deadline for choosing its joint venture partner.
Cerberus Assets management, which came a close second, bid a similar amount, but JC Flowers had the advantage of already owning an asset reconstruction company (ARC) in India, the people said on condition of anonymity.
“Cerberus would have taken six months to get RBI approval for acquiring a new ARC, whereas JC Flowers already had an existing ARC structure in place,” said one of the people cited above.
Yes Bank will need to invest ₹400 crore in the JC Flowers ARC to pick up a 20% stake in the company.
Payments by the joint venture company for the bad loan book will be made under the 15:85 structure, with ₹1,800 crore, or 15% of the agreed amount, to be paid upfront in cash to Yes Bank. The rest will be paid in security receipts to be redeemed as the ARC recovers money from defaulters.
The bad loan book of ₹49,000 crore includes so-called technical write-offs worth ₹17,000 crore and soured investments. Technical write-offs involve moving a fully provided bad loan account off the balance sheet even as recovery efforts continue.
The deal with JC Flowers clears the way for Yes Bank to raise ₹10,000 crore of equity capital, which had been delayed due to the sizable amount of soured assets on its books. According to media reports, the bank is in talks with Advent International and Carlyle to raise equity.
In August, Yes Bank invited expressions of interest to set up the ARC, in which it proposed to own a 20% stake. The Reserve Bank of India (RBI) had earlier rejected Yes Bank’s application to start an ARC, citing a conflict of interest. Following this, the bank tweaked the structure of the proposed ARC, offering to hold a minority stake and find more shareholders to overcome the regulatory hurdle.
In February, Mint reported that Cerberus, one of the world’s largest assets investors, was looking to acquire a controlling stake in Blackstone’s International Asset Reconstruction Co. (IARC), which will be the investment vehicle for the transaction with Yes Bank. Cerberus shelved the plan to buy a new ARC licence from RBI as it was a time-consuming process and instead decided to bid for an existing ARC.
In comparison, JC Flowers has a presence in India with its JC Flowers ARC, a joint venture (JV) with Indian distressed investor Eight Capital and London-based Emso Asset Management. In February, Mint reported that Eight Capital had quit the JV because of differences in opinion over the proposed Yes Bank deal. While Eight capital wanted to make concentrated investments, one at a time, JC Flowers wanted to invest in a wide range of distressed deals to start with, the report added.
A spokesperson for JC Flowers declined to comment. A Yes Bank spokesperson didn’t respond to an email query seeking comment.
Source: Mint