Yes Bank to invest Rs 350 crore for 20% in JC Flowers ARC

The bank is holding provisions worth 81% of the portfolio identified for the transfer and the net carrying value of the assets on its balance sheet is Rs 8,300 crore.

Yes Bank managing director & CEO Prashant Kumar said on Monday that the immediate investment by the bank would be 10% of the cash component of the assignment value.

Private lender Yes Bank plans to invest Rs 350 crore to acquire a 20% stake in JC Flowers Asset Reconstruction Company (ARC), which it has identified as the base bidder for its Rs 48,000-crore pile of stressed assets. The bank plans to raise $1 billion in capital during the current financial year.

Yes Bank managing director & CEO Prashant Kumar said on Monday that the immediate investment by the bank would be 10% of the cash component of the assignment value. The value of the base bid made by JC Flowers ARC is Rs 11,100 crore. “Anything in excess of that (10% stake) will be subject to regulatory approval, up to 20%. So about Rs 350 crore will be the total capital required for a 20% stake,” he said.

The bank is holding provisions worth 81% of the portfolio identified for the transfer and the net carrying value of the assets on its balance sheet is Rs 8,300 crore.

Out of the assignment value of Rs 11,100 crore, JC Flowers ARC will pay 15% in cash, with the remaining 85% being in the form of security receipts.

Since the assignment value of the assets is more than their net present value, Yes Bank will not need to make any extra provisions, Kumar said. In case of any recovery by the ARC which is more than the assigned value, the bank would get a share. “Even the revenue part, since we have a 20% shareholding, that would also be shared,” he said.

In keeping with regulatory requirements, the bank launched a Swiss challenge auction for the assets on Saturday. It plans to complete the entire exercise within 60-75 days. The sale of the asset block will bring down Yes Bank’s gross non-performing asset (NPA) ratio to around 2% from 13.93% as of March 31, 2022, Kumar said.

Yes Bank has envisaged its joint venture with JC Flowers ARC as a bad bank-like platform in the private banking space, which can effectively aggregate stressed assets before initiating resolution, Kumar said. “This was an opportunity to create a credible platform within the country which offers a solution around stressed assets. The most important part was in terms of accumulating all the stressed assets from the different banks. With a similar thought process, the Government of India has also set up the NARCL (National Asset Reconstruction Company). Our thinking is, can we also establish a similar platform in the private banking segment?”

The bank initially planned to set up an ARC where it would be the majority partner holding a 51% or 49% stake. This plan was nixed by the Reserve Bank of India in 2021 as the central bank wanted Yes Bank to hold no more than 20% in an ARC. In August 2021, Yes Bank and EY India launched a process to identify an ARC partner. They received expressions of interest from 13 global players, from which JC Flowers ARC was eventually identified as the partner.

Kumar said JC Flowers’ existing ARC licence along with the quality of governance at the institution and its global standing were important factors in the reckoning.

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