Yes Bank gets binding bids from JC Flowers & Cerberus for its ARC

Two private equity firms have submitted binding bids to acquire a stake in Yes Bank’s proposed asset reconstruction company (ARC), two people aware of the development told CNBC-TV18.

US-based Cerberus Capital and JC Flowers & Company submitted binding bids, while the other shortlisted player's Oaktree Capital and Apollo Global Management stayed away, as per people in the know.

The deadline to submit binding bids for the ARC ended on Saturday, February 5.

CNBC-TV18 had earlier reported that four private equity players were shortlisted from a dozen Expressions of Interests (EOI) submitted for the ARC business, namely Cerberus Capital, JC Flowers and Company, Oaktree Capital, and Apollo Global Management.

“We have to look at both financial and non-financial parts of the bid to make a decision,” said a person directly in the know, adding that the details of the bids submitted on Saturday are yet to be examined.

When asked if JC Flowers’s differences with its joint venture partner Eight Capital would affect the bid it made, this person said, “As far as the bank is concerned, JC Flowers has made the bid. Whether or not they come with their partner or rope in someone else in another matter.”

CNBC-TV18 reached out to Yes Bank for a comment, but no response was received at the time of publishing this story. Responses from Cerberus Capital, and JC Flowers and Co are also awaited.

“Out of the 15 EOIs (Expressions of Interest) we received, we expect many of the players like Edelweiss and SSG to participate in the auction process through the Swiss Challenge method to buy loans, even if they did not submit binding bids,” said one of the people quoted earlier.

Yes Bank had received EOIs from over a dozen players for its proposed ARC last year. Brookfield Asset Management, Ares SSG, Oaktree Capital Management, JC Flower, Vardhe Capital, CarVal Investors, Avenue Asia Group, Bain Capital’s India Resurgent Fund, Cerberus Capital, Apollo Global Management, Rohatyn Group and Silver Point Capital were among the players who had submitted EOIs. Four of these were subsequently shortlisted by the bank. Yes Bank has appointed Ernst & Young as the process adviser.

As per people in the know, Yes Bank will hold a 20 percent stake in the ARC, with the remaining stake to be held by the foreign partner. “We have 20 percent stake in mind for Yes Bank and remaining for partner, but the final structure will have to be as per RBI’s comfort,” said a person in the know.

The bank is looking to transfer over Rs 50,000 crores of loans to the ARC.  The deal size expected to be around Rs 12,000-15,000 crores, CNBC-TV18 had reported.

Given the 15:85 deal structure of ARCs, where 15 percent is given in the form of cash and 85 percent in the form of security receipts, it will translate into the foreign partner bringing in about Rs 1450-1800 crores of cash for its 80 percent stake, CNBC-TV18 had reported

The bank, while inviting EOIs for its ARC earlier, had stipulated that an investor should have minimum assets under management and funds deployed globally of at least $ 5 billion.

This is the second attempt by Yes Bank to set up an ARC. The last time around, Reserve Bank of India had rejected its proposal to set up an ARC as it wasn’t keen on the bank being the majority shareholder due to potential conflicts of interest.

Even after the foreign partner is shortlisted, the bank will have to make a fresh application to RBI to seek its nod for the ARC license. The setting up of the company will ultimately depend on the regulator’s comfort with the proposed structure.

Yes Bank reported gross non-performing assets of Rs 28,654 crores, and Total Gross Restructured Loans of Rs 6,878 crores as of December 31, 2021. Its gross NPA ratio stood at 14.7 percent and net NPA ratio at 5.3 percent for the third quarter.