Yes Bank Stressed Asset Sale Heats Up As Two Challengers Emerge

The race to buy Yes Bank Ltd.'s stressed assets worth Rs 48,000 crore is heating up, as two asset reconstruction companies have shown interest in challenging JC Flowers & Co.

The lender had chosen JC Flowers as the base bidder and partner for these stressed assets.

ARCION Asset Reconstruction Co. and Asset Reconstruction Co. of India Ltd. have submitted an expression of interest to participate in a Swiss Challenge auction for the assets, according to two people with direct knowledge of the matter.

ARCION ARC is being acquired by Cerberus Capital Management, so it may participate in the auction, the people quoted above said on the condition of anonymity. ARCION was previously owned by Apollo Capital.

The deadline for submitting an EOI ended on Saturday.

Queries emailed to Yes Bank, ARCION ARC and Cerberus Capital did not elicit a response. ARCIL's Managing Director and Chief Executive Officer Pallav Mohapatra did not respond to calls and text messages on Saturday.

The prospective bidders will now have around a month to conduct their due diligence on Yes Bank's stressed asset portfolio, so that they may submit a bid at the end.

According to the rules of the Swiss Challenge auction, if any of the two challengers submit an offer higher than the base bid, JC Flowers will have the right to match the new offer. If it is not able to match the offer, or improve upon it, the challenger wins the mandate to purchase the assets.

While disclosing its June-quarter results, Yes Bank said JC Flowers ARC has submitted a bid worth Rs 11,183 crore for the stressed assets, which is now being classified as the base bid.

Cerberus Capital was one of the bidders who was looking to purchase Yes Bank's stressed assets earlier. While its offer was close to what JC Flowers ARC had submitted, it was not selected owing to a lack of an ARC licence, the two people quoted above said.

With the acquisition of ARCION ARC, Cerberus Capital expects to submit an improved offer for the assets, the people quoted above said.

As part of the transaction, if JC Flowers ARC ends up winning the Swiss Challenge auction, Yes Bank will buy a 20% stake in the ARC. The bank will invest up to Rs 350 crore in JC Flowers ARC to purchase this stake.

This is being done to create a platform for resolution of stressed assets, Prashant Kumar, managing director and chief executive officer at Yes Bank, had told reporters during a briefing last week. This platform can then purchase bad loans from other financial institutions to help them with recoveries too.

If a challenger wins the auction, the bank will discuss the option of creating such a platform with the new buyer. Partnering with Yes Bank after the sale, however, is not mandatory, Kumar had clarified last week.

Once the sale of the stressed assets is completed, Yes Bank's gross non-performing assets will drop to 1.5-2% from the current 13.4%, Kumar said, while addressing reporters after announcing the bank's June quarter results on Saturday.

Yes Bank will look to raise up to $1 billion (Rs 7,900-8,000 crore) from a clutch of investors after the sale, Kumar had said on July 18.