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Cerberus, Oaktree and JC Flowers shortlisted for Yes Bank’s planned ARC

Cerberus is said to be the frontrunner. Process advisor EY had indicated that applicants ready to infuse Rs 1,500-2,000 crore would be given preference

October 12, 2021 / 11:14 AM IST
Representative Image (Source: ShutterStock)

Representative Image (Source: ShutterStock)

Alternative investment management firm Oaktree Capital Management, private equity (PE) fund Cerberus Capital Management and JC Flowers & Co. have been shortlisted to be the equity partner for Yes Bank’s proposed asset reconstruction company (ARC), two people familiar with the development said.

The three US firms are among 12 that submitted expressions of interest to Yes Bank’s process advisor EY by August 31. EY selected the three entities based on their indicative plans for the structure of the proposed ARC, the people said.

Cerberus Capital is the frontrunner, followed by Oaktree, a third person said. JC Flowers already has an operational ARC in India – JC Flowers ARC – in a joint venture (JV) with Eight Capital.

Oaktree declined to comment on the matter. Yes Bank, Cerberus and JC Flowers did not immediately respond to queries seeking comment.

EY had indicated that applicants willing to infuse capital of Rs 1,500-2,000 crore would be given preference, according to the two people.

Close

EY is in the process of inviting binding bids from the three shortlisted applicants and will identify a partner after negotiating the terms of agreement. Following this, the proposal will be placed before the board of Yes Bank for approval, the people said.

Brookfield Asset Management, Ares SSG Capital, Varde Partners, CarVal Investors, Avenue Asia Group, Bain Capital’s India Resurgent Fund, Apollo Global Management, Rohatyn Group and Silver Point Capital were among the 12 applicants, Mint reported on September 2.

The transfer of Yes Bank’s distressed portfolio to the proposed ARC will boost the listed lender’s valuation and enable it to attract growth capital and free the workforce to source new business, according to a banking analyst. The Rana Kapoor-promoted bank was bailed out after State Bank of India and private lenders infused Rs 10,000 crore as capital in March 2020 to keep it afloat.

Conflict of interest

The Reserve Bank of India (RBI) had initially rejected Yes Bank’s application to start an ARC, citing conflict of interest, according to a Mint report in March 2021.

“There are 28 operational ARCs in India and Yes Bank can sell its non-performing assets (NPAs) to any of them. Why should they need a separate ARC to warehouse their NPAs?” asked a senior central bank official who did not want to be identified.

Following the RBI’s rejection, Yes Bank tweaked the structure of the proposed ARC and offered to become a minority shareholder in the entity to overcome the regulatory hurdle.

Under the new plan, Yes Bank would own a 20 percent stake and its foreign partner would hold 80 percent in the ARC, the first person said. As the majority shareholder, the foreign partner would be the sponsor and apply for an ARC licence, the person said.

Yes Bank will sell about Rs 50,000 crore of its stressed loan portfolio to the ARC on a 15:85 basis. The ARC will pay 15 percent of the transaction value as cash and issue security receipts for the remainder, with their redemption linked to recoveries, the first person said.

The Rs 50,000 crore loan portfolio includes a chunk of written-off assets for which the bank has made full provisions, the first person said.

Yes Bank will sell the loans to the proposed ARC only after holding an open auction and inviting bids from other ARCs, as stipulated by the RBI guidelines on the sale of distressed loans by banks.

EY has also stated that Akash Suri, group president and national head of asset reconstruction and management at Yes Bank, has been identified as the CEO candidate for the proposed ARC and that the bank will not pay any management fee to the ARC, said the third person.

Although Suri’s appointment can only be proposed by the board of the proposed ARC, it will be subject to the RBI’s approval. Most ARCs charge banks 1-1.5 percent of the loan sold until they fully recover or write off the loan.

Yes Bank’s gross NPAs stood at Rs 28,506 crore at the end of June and after provisions, the net NPAs were Rs 9,455 crore.

When the RBI superseded Yes Bank in early March last year, it was saddled with loans to the Anil Dhirubhai Ambani Group, Essel Group, Dewan Housing Finance Corporation and Infrastructure Leasing and Financial Services, among others, that had turned sour, the Economic Times reported on March 11, 2020.
Sangita Mehta

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