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Yes Bank Ltd’s board has chosen JC Flowers Asset Reconstruction Co as the highest bidder to become the joint venture partner for the sale of bank’s ₹48,000 crore (around $6 billion) bad loans.
With the final approval from the Board Credit Committee on July 13, 2022, the Bank said it has “signed a binding term sheet with JCF ARC LLC and JC Flowers Asset Reconstruction Private Limited (JC Flowers ARC) for strategic partnership in relation to sale of identified stressed loans of the Bank".
The term sheet will be effective on July 15.
“Accordingly, the Bank has decided that the JC Flowers ARC will be base bidder for a proposed sale of an identified stressed loan portfolio of the Bank aggregating to up to ₹48,000 crore, the bank further said adding that it proposes to run a transparent bidding process on Swiss Challenge basis for sale of such portfolio using the JC Flowers ARC’s bid as the base bid.
JC Flowers has likely valued Yes Bank’s bad loan book of ₹48,000 crore at ₹12,107 crore, which will get transferred to the ARC.
The Swiss challenge auction process will start on Friday for potential buyers to up the offer. American private equity firm Cerebrus Capital, which was in the race to purchase Yes Bank’s bad loans, is expected to participate in the Swiss challenge, two people said on the condition of anonymity.
Under the Swiss challenge method, an entity makes an offer for an asset and the bid price is put as a benchmark to call for more proposals to make a higher offer. Once these are received, the original bidding entity is allowed to match the best bid. This typically takes place for buying/selling of non-performing assets (NPAs).
The deal will further make way for Yes Bank to invest around ₹400 crore for a 20% stake in JC Flowers ARC.
As part of the deal, the mid-sized private sector lender had demanded a $50 million bond guarantee from potential suiters bidding for the NPAs. JC Flowers was additionally required to clear the shareholder dispute before the acquisition," the above-mentioned people said.
Earlier this year, Eight Capital pulled out of the JV due to a difference in opinion over bidding for Yes Bank’s bad loans. The Mumbai-based distressed manager is also awaiting approval from the Reserve Bank of India for its stake sale.
The ARC is a three-way consortium of New York-headquartered JC Flowers group (50%) London-based hedge fund Emso Asset Management (15%) and Mumbai-based Eight Capital (35%).
Meanwhile, the RBI is likely to approve Yes Bank’s 20% stake purchase and Eight Capital’s stake sale simultaneously, one of the persons told VCCircle.
Once Yes Bank’s stake purchase is completed, the lender will participate in a rights issue proportionate to its stake of the total estimated fund raise ₹1,800 crore. This will be used by the ARC to meet the 15% cash payment to buy the bank’s bad loans, one of the persons said on the condition of anonymity.
As per 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 way for Yes Bank to clean up its books and raise further capital for business growth.
Last month, Mint reported that Yes Bank is in advanced stages of negotiations to close a $1 billion equity fundraise from private equity firms Carlyle and Advent International.