Private lender Yes Bank Ltd. is nearing a deal to sell a pool of Rs 48,000 crore in stressed assets to the U.S.-based JC Flowers & Co., according to a person directly in the know.
The bank will sell these loans and investments to JC Flowers Asset Reconstruction Co.
JC Flowers has agreed to place a Rs 12,400 crore bid against the entire pool of stressed assets on sale, ensuring a 25% recovery for the bank. However, each asset in the pool will have to undergo a Swiss challenge auction, where competitors are allowed to raise their bid higher than JC Flowers. Under the auction, JC Flowers will have the right of first refusal.
As part of the process, JC Flowers has done due diligence into individual assets.
Apart from JC Flowers, Cerberus Capital Management and Apollo Global Management were in negotiations with Yes Bank, the person quoted above said.
While Cerberus Capital’s offer was close, JC Flowers already had a licensed ARC under its belt, giving it an advantage. As part of the transaction, Yes Bank will also be required to invest Rs 300-400 crore in the ARC, to pick up a minority stake. Moreover, a large part of the bank’s stressed asset management team will move to the ARC.
Once the deal is signed, Yes Bank can submit the proposed structure to the Reserve Bank of India for final approval. This will be the second attempt by the bank to propose such a scheme.
Queries mailed to Yes Bank, JC Flowers, and Cerberus were not responded to immediately.
Last year, the bank had sought to set up an ARC on its own, so it can transfer the large pool of stressed assets. However, the RBI had rejected the plan.
The bank set out on a new structure after that rejection, where a partner would hold majority equity stake in the ARC, and Yes Bank would be a minority partner. The bank is confident that the RBI would approve this scheme.
The transfer of these stressed assets to another entity is essential for Yes Bank, which has been trying to resolve the legacy issues on its balance sheet, since a rescue effort by the RBI in March 2020. The three-year lock-in for the major banks which had invested in Yes Bank during the rescue ends in March 2023. After this, the banks are free to sell their stake in the open market, if they so choose.
As of March 31, the bank’s gross non-performing loans stood at Rs 27,976 crore. Non-performing investments were at Rs 8,503 crore. Apart from these, the bank will also look to sell a portion of the stressed assets on its book, which are not yet classified as NPA.