Yes Bank: JC Flowers-led group may invest $2 billion in YES Bank

JC Flowers & Co, a private equity fund specialising in the turnaround of financial firms around the world, is leading a consortium that plans to invest as much as $2 billion in Yes Bank.

About half-a-dozen investors, including JC Flowers & Co, Tilden Park Capital Management, OHA (UK) (part of Oak Hill Advisors) and Silver Point Capital, have sent in ‘non-binding’ expressions of interest, and the investment could be in two stages.

“The bank and its financial advisors are currently in discussions with these investors on the commercial terms, including pricing, of their investments which…will be subject to certain conditions and receipt of requisite approvals, including regulatory approvals with respect to the size of the stake to be acquired, as well as necessary dispensations with regard to applicable pricing guidelines,” the bank said in a late evening exchange filing after ET had earlier sent the lender a query on potential investors in the current round of capital raising.

Industry executives told ET that the proposals include a preferential sale of shares to JC Flowers & Co and some investors followed by a rights share sale by Yes Bank. The firm, led by Christopher Flowers, has signed a non-–binding agreement subject to regulatory approval. There is no certainty that the agreement would translate into a successful transaction. The bank’s board would meet before March 14 to consider the offers.

BCCL

“There has been thorough due diligence of the books and it is only the details like pricing and the regulatory approval that are to be completed,’’ said one of the persons cited above. “Of course, there could be many unanticipated issues that could pop up, but it is a lot more concrete than on previous occasions.”

Yes Bank’s financials came under scrutiny last year due to surging bad loans and management uncertainty after the Reserve Bank of India declined to extend the term of founder Rana Kapoor as the chief executive in 2018. Under the new CEO Ravneet Gill, the bank managed to raise one round of funds through share sale to institutional investors, but that was not enough.

It recently hired former Deutsche Bank veteran Anshu Jain, now president at boutique investment banking firm Cantor Fitzgerald, to help raise funds. Ambit Capital’s Ashok Wadhwa has been working along with Jain in raising investments from JC Flowers, it is learnt.

Successful completion of the transaction with JC Flowers would be a coup of sorts for Yes Bank, the shares of which have been pummelled in the past few months for failure to raise money.

JC Flowers, the youngest partner at the storied Goldman Sachs Group who went on to lead its financial services business, made his name by investing in distressed financial institutions across the world. His investments in Japan’s Shinsei Bank after its collapse in the 1997 Asian financial crisis, the first by a foreigner in Japan, vaulted him onto the global stage. Flowers successfully turned around the lender with a focus on retail lending, buttressed by technology.

TECH EDGE
For a private equity investor of JC Flowers’ stature who has held on investments for more than a decade, Yes Bank could be a good bet as its technology platform offers the potential to grow in an economy that’s increasingly turning digital, a top industry executive said.

“Yes Bank does more UPI transactions than the top three private banks put together and more than double that of Paytm,” said the person. “If other private transactions are any indication, its tech platform could be valued as high as $6-7 billion.’’ Flowers had other investments in Europe too. He backed the UK’s OneSavings Bank and the Dutch lender NIBC NV.

At Yes Bank, Flowers’ stake could go as high as 50% depending on the structure of the deal the regulator permits.

“If there’s a market solution to the problem, there should be no issue,’’ said one of the persons aware of the negotiations with the regulator. “It can cap the voting rights at 15% and permit a higher holding.”

Yes Bank shares are down 88% in the past year from their peak due to its weak financials. The bank rejected Canadian billionaire Erwin Singh Braich’s offer to buy $1.2 billion worth of shares late last year.

Raising capital is crucial because rising non-performing loans have increased provisions and eroded the bank’s net worth. The bank posted a loss of Rs 600 crore in the September quarter due to a one-off tax hit of Rs 709 crore on account of the change in the corporate tax rate regime. Excluding this one-time hit, adjusted profit was Rs 109 crore. Gross bad loan ratio rose to 7.4% from 5% at the end of June.