Eight Capital, a part of a consortium of New York headquartered JC Flowers group and London-based Emso asset management, and one of the key contenders for the proposed asset reconstruction company (ARC) of private sector lender Yes Bank, has pulled out of the joint venture, two persons familiar with the development said requesting anonymity.
Ravi Chachra– Chairman and Managing Partner of Eight Capital who was also the CEO of the consortium sponsored has resigned, on the persons cited above, added.
The JC Flowers-led consortium is one of the four potential buyers shortlisted by Yes Bank to form an ARC to take over the private bank's bulky NPAs. JC Flowers has a presence in India with its JC Flowers ARC – a joint venture (JV) with Indian distressed investor Eight Capital and London-headquartered Emso Asset Management.
"Due to differences of opinion between JC Flowers and Eight Capital last week over the proposed Yes Bank transaction and the valuation of the bank's NPAs, the latter has decided to quit the JV and withdraw from the race to acquire Yes Bank's NPAs, said the first person. Additionally, there was a difference of opinion over the overall strategy on India business. “While Eight capital wanted to make concentrated investments, one at a time, JC Flowers wants to invest on a wide range of distressed deals to start with” the first person added.
"The bank believes the bad loans can fetch a much higher value today since the assets backing these loans have undergone a revival over the past year. Real estate and infrastructure activities have picked up. The value of such assets has certainly gone up since 2019 end of 2019," said the second person. If a large, deep-pocketed ARC really applies its global expertise, invests time and uses the right strategy driven by an experienced stressed asset team, the assets can definitely fetch decent valuations, "said the first person, who is directly familiar with the ongoing ARC discussions with potential buyers.
While there is a basic quotation stated by Yes Bank for the asset sale, the mid-sized lender is looking for Rs. 15,000-20,000 crore valuation for the ARC and the name of the buyer will be shortlisted by this month end, according to the first person.
"Differences cropped up over the valuation of the assets as Eight Capital felt that Yes bank is seeking more than what's feasible” said the first person cited above. Other bidders for the planned ARC include global alternative investment management firm Oaktree Capital Management, private equity (PE) fund Cerberus Capital Management and JC Flowers are among the four players that have been shortlisted to be the equity partner for Yes Bank’s proposed ARC. EY is advising Yes Bank with the process.
Response to email queries on the above development is awaited from Eight Capital , JC Flowers and Emso asset management .
There were 13 players last year in the race to acquire Yes Bank's bad loans. Of them four have shortlisted and the bank had sought binding bids by 25 January, 2022 from private equity investors. Even with a 20% stake in the proposed ARC, the private sector lender wants the right to appoint the chairman and key managers across departments of the proposed ARC, Mint reported in January.
Brookfield Asset Management, Ares SSG Capital, Varde Partners, CarVal Investors, Avenue Asia Group, India Resurgent Fund – a joint venture between Piramal Enterprises and Bain Capital Credit, Apollo Global Management, Rohatyn Group and Silver Point Capital were among the 13 applicants, Mint had reported on 2 September.
In March 2020, the Rana Kapoor-founded bank was bailed out after State Bank of India (SBI) and some private lenders with a Rs 10,000-crore capital infusion to keep it afloat. Yes Bank, now backed by the country's largest lender, had stipulated that an investor should have minimum assets under management (AUM) and funds deployed globally of at least $5 billion.
In August, Mumbai-based Yes Bank invited expressions of interest to set up the asset reconstruction company (ARC).The Reserve Bank of India (RBI) had earlier rejected Yes Bank’s application to start an ARC, citing conflict of interest, Mint had reported in March last year. Following this, the mid-sized private bank has tweaked the structure of the proposed ARC offering to hold a minority stake and find more shareholders to overcome the regulatory hurdle. For now, Yes Bank has set up a separate team for non-performing assets (NPAs) with around 100 people to manage over Rs. 54,000 crore NPA book.