Yes Bank may invest over Rs 350 cr in ARC JV with JC Flowers

Private lender Yes Bank could deploy more than ₹350 crore for a 20% stake in a proposed asset reconstruction company (ARC) being set up as a joint venture with JC Flowers.

The bank has announced that it will sell bad loans worth ₹48,000 crore at a value of ₹11,100 crore. After the sale, the gross NPA of the bank will drop to below 2% from the current 14% level.

"Out of the assignment value of ₹11,000 crore, 15% will be coming to us in cash. The remaining 85% will be in the form of security receipts and a 20% stake in the ARC would cost us ₹350 crore," Prashant Kumar, MD, Yes Bank, said on Monday. "Out of the ₹48,000 crore, our provision is 81%. The net carrying value of these assets on our balance sheet is ₹8,300 crore. The base bid we have received from JC Flowers is ₹11,100 crore."

Last week, said that it has signed a term sheet with JC Flowers Asset Reconstruction (ARC) as its joint venture partner for the sale of bad loans worth ₹48,000 crore. Yes Bank will contribute equity to the proposed ARC, which will initially deal with Yes Bank's soured assets before expanding its ambit.

As per the central bank guidelines, Yes Bank is proposing to run a transparent bidding process on a Swiss Challenge basis for the sale of such a portfolio using the JC Flowers ARC's bid as the base bid.

"We have launched the Swiss challenge on Saturday last week, we plan to complete the entire exercise within 60-75 days," Kumar said. "No approval is required because JC Flowers already has an ARC; the regulatory approvals would come in when we would like to invest beyond 9.99%."

Kumar added that since the bank will be considerably able to clean up its books after the sale of bad assets, it will start the process to raise $1 billion in capital.

"We plan to take our CET1 ratio above 14% from the present 11.5%; a much cleaner balance sheet will also get us a better valuation," Kumar said.

Kumar added that an ARC is a large business opportunity and the lender would look to grow this business model. "There are assets that are sitting across multiple banks and it is important for any resolution firm to aggregate all these loans so that the decision-making is faster," he said.