Yes Bank Gets Investment Interest From PE Firm Advent International

Global private equity firm Advent International is conducting due diligence to invest up to $1 billion (about Rs 7,500 crore) worth equity capital in Yes Bank Ltd., according to two people in the know, who spoke on the condition of anonymity. The fund has expressed an interest in investing and due diligence has been on for about three weeks, these people said.

The conversations between the bank and the investor, though, are still in early stages and there is no certainty that a binding offer will be made, the people quoted above said.

Yes Bank's current market capitalisation is around Rs 35,000 crore. As such, a $1-billion investment could fetch up to 22% equity stake in the bank. As per existing regulations, an acquisition of more than 5% stake in a private bank requires the Reserve Bank of India's written approval.

With over $86 billion in assets under management, Advent International is a large global investor. Since January 2020, the fund has invested in a number of Indian companies like DFM Foods, Bharat Serums and Vaccines, Aditya Birla Capital and RA Chem Pharma, according to its website. It has been investing in Indian companies since 2007.

The Economic Times newspaper first reported on Friday that Advent International was in talks to invest $1 billion in Yes Bank. Queries sent to Advent International and Yes Bank on Monday did not elicit responses immediately.

The investment proposal by Advent International could be key to ensuring the bank is well on its path to recovery. In March 2020, a clutch of domestic lenders led by State Bank of India had invested Rs 10,000 crore as part of a resolution plan stitched together by the RBI. As per the agreement, 75% of shares for those part of the resolution plan were locked-in for three years.

As of December, SBI held a 30% stake in Yes Bank, compared with 48.21% as of March 2020, according to exchange data. The reconstruction plan requires India's largest lender to hold a minimum of 26% stake in Yes Bank till March 2023. Once the lock-in limit is lifted, the shareholding can be brought down further.

Yes Bank had later raised Rs 15,000 crore through a qualified institutional placement. Through this, investors including Tilden Park, Jupiter South Asia Investment Company, Bajaj Allianz Life Insurance, Reliance General Insurance, etc. bought stake in Yes Bank.

Yes Bank's last public fundraise has helped the bank adequately provide against stressed assets on its book. Further, it strengthened the bank's balance sheet against losses emanating from the Covid-19 pandemic.

As on Dec. 31, Yes Bank's gross non-performing asset ratio has fallen to 14.7% from 15% as on Sept. 30. Similarly, the net NPA ratio has improved 26 basis points sequentially to 5.29%.

While its asset quality position has improved, the bank's loan book has grown modestly. In the third quarter of FY22, outstanding loans stood at Rs 1.76 lakh crore, up 3.8% year-on-year. The slower growth was primarily led by a 15% contraction in Yes Bank's wholesale advances.

According to the first of the two people quoted above, the private sector lender's plans to transfer around Rs 50,000 crore to its captive asset reconstruction company will aid in a full cleanup. Yes Bank is currently in the process of identifying a partner who will hold 80% equity in this ARC.

Last week, the lender received binding offers from two global distressed asset investors, JC Flowers and Cerberus Capital, said the first person quoted above. Yes bank is pricing its Rs 50,000 crore pool of stressed assets at Rs 10,000-11,000 crore, inclusive of the value of collateral held in these accounts and the level of provisions the bank has made, this person said.

The winning investor is likely to bring in approximately Rs 2,000 crore in capital into the ARC. While Rs 1,500-1,600 crore will be used to buy the stressed loans from Yes Bank, the rest of the capital will be used for operational expenses and purchasing bad loans in the future, the first person quoted above said.

About 60% of Yes Bank's 90-member stressed asset team is likely to move to the ARC, as part of this deal. The majority investor will, however, manage the entity, the person said.

Queries mailed to Yes Bank, JC Flowers and Cerberus Capital on Monday were not responded to.

After the cleanup, the bank's profitability is expected to improve significantly, boosting value. The bank's senior management will also not be required to remain constantly focussed on recovering stressed assets, freeing them up to focus on growth, the person quoted above said.