Yes Bank shortlists JC Flowers as its ARC partner; deal to help clean-up bank's balance sheet

Private sector lender Yes Bank has shortlisted US-based private equity firm, JC Flowers, as its joint venture partner for its proposed asset reconstruction company (ARC), said two people directly aware of the matter on the condition of anonymity.

CNBC-TV18 has reported earlier this year that foreign private equity firms like Cerberus, and Apollo Global ​were in the fray to partner up with Yes Bank for its ARC foray, along with JC Flowers. Bids were invited from all suitors, and JC Flowers has emerged as the winning bidder, CNBC-TV18 has learnt. The bank is understood to be in the final stages of formalising its agreement with JC Flowers.

This is the second attempt by the bank to set up its own ARC after the Reserve Bank of India turned down its earlier proposal in March last year. The bank had thus proposed a new structure, where it would hold a minority 20 percent stake in the proposed ARC, whereas an 80 percent stake would be held by its foreign joint venture partner. Yes Bank is looking to transfer approximately Rs 51,000 crore of its bad loans to the ARC, and in the process completely clean up its balance sheet.

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According to people in the know, JC Flowers' deal values Yes Bank's bad loan portfolio at Rs 12,100 crore. As per the existing 15:85 ARC asset transfer formula, JC Flowers will have to bring in 15 percent or about Rs 1,800 crore of cash upfront, and the remaining will be paid out in the form of security receipts over a period of time, as the ARC recovers money from the bad loan accounts.

If consummated, this deal will result in the largest ever transfer of bad loans from a bank to an ARC in one go, and also help Yes Bank become a net-zero non-performing assets (NPA) bank.

JC Flowers already has a presence in India through its existing ARC. JC Flowers ARC was set up as a three-way joint venture between Eight Capital with a 35 percent stake, London-based hedge fund Emso Asset Management with a 15 percent stake, and JC Flowers & Co with a 50 percent stake. However, earlier this year, Eight Capital pulled out of the joint venture.

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Yes Bank is now expected to hold a Swiss Challenge auction to invite counter bids with JC Flowers' offer as the base bid. If the bank does receive a higher offer, JC flowers would have the right to match the offer, as per the terms of the agreement, CNBC-TV18 has learnt. The bank is only expected to submit its proposal to the Reserve Bank for its final nod on the ARC set up a post that, said a person involved in the deal.

​CNBC-TV18 has reached out to both Yes Bank and JC Flowers for a comment on the story. Their responses were awaited at the time of publishing this copy. The story will be updated if and when a response is received.

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