Yes Bank Ltd’s board has selected JC Flowers Asset Reconstruction Co. as the joint venture partner to buy ₹48,000 crore (around $6 billion) of the private-sector lender’s bad loans.
With the final approval from Yes Bank’s board credit committee on 13 July, the bank signed a binding term sheet with JC Flowers for the strategic partnership, the bank said.
The bank said it now proposes to run a Swiss challenge bidding process to sell its bad loans portfolio, using JC Flowers ARC’s bid as the minimum bidding amount. However, JC Flowers will be allowed to match the amount if a rival bidder exceeds the base bid.
The Swiss challenge auction process was scheduled to start on Friday. American private equity firm Cerberus Capital, which was in the race to purchase Yes Bank’s bad loans, was also expected to participate in the Swiss challenge, two people said on the condition of anonymity.
JC Flowers has valued Yes Bank’s bad loan book at ₹12,107 crore, one of the two people said.
Yes Bank will now invest around ₹400 crore for a 20% stake in the joint venture with JC Flowers ARC. As part of the deal, the private sector lender demanded a $50 million guarantee from potential suiters bidding for the NPAs. In addition, JC Flowers was required to clear the shareholder dispute with Eight Capital before the acquisition, the people cited above said.
Earlier this year, Eight Capital pulled out of the JV with JC Flowers because of a difference of opinion over bidding for Yes Bank’s bad loans. The distressed manager is also awaiting approval from the Reserve Bank of India for its stake sale.
Once Yes Bank’s stake purchase is completed, the lender will participate in a rights issue proportionate to its stake to raise ₹1,800 crore.
The funds will be used by the ARC to meet the 15% cash payment to buy Yes Bank’s bad loans, the second person said on the condition of anonymity.
According to RBI requirements, ARCs are required to purchase bad loans from any lender under the 15:85 structure, where 15% of the net value of the asset needs to be paid upfront while the balance 85% is paid in the form of security receipts. The deal will further pave the way for Yes Bank to clean up its books and raise further capital for business growth.