YES Bank crisis: PE firms want to invest at Rs 10/share, on par with SBI

JC Flowers, Tilden, Cerberus ask SBI to prepare a clean-up plan

As State Bank of India (SBI) advances talks with interested buyers to co-invest in YES Bank, it is learnt that global private equity (PE) investors have laid out two important conditions before they seal the deal.

JC Flowers, Cerberus Capital and Tilden Park Capital, which have been negotiating with YES Bank since mid-January, and Blackstone, which recently evinced interest in the bank, insist that SBI should have a plan to clean up the troubled lender’s assets and liabilities. “The PE investors have asked SBI to ensure that both additional tier-1 (AT-1) bonds and tier-2 bonds be written down,” said a person aware of the development.

These investors are apprehensive to take on any past bondholder dues after pumping in money into the bank, said the person cited above. The Reserve Bank of India’s (RBI’s) draft reconstruction scheme presented on March 6 mentions the writing off of AT-1 bonds, though it is silent on the treatment of tier-2 bonds. Normal circumstances do not permit writing off tier-2 bonds. “However, when the RBI invokes powers under section 45 of Banking Regulation Act, it gives a lot a leeway,” said Ananth Narayan, professor, Bharatiya Vidya Bhavan’s SPJIMR.

It is also learnt that the PE investors have asked SBI to identify the quantum of potential stressed loans in the bank and transfer them to an asset reconstruction company (ARC).

“We know that these assets won’t fetch much even if bought by an ARC, but the objective is to clean up the book,” said another person with direct knowledge of the development.

The funds have stated their willingness to invest in YES Bank, even if it should suffer an unprecedented loss in the December quarter due to these write-offs. “Investors are seeking comfort that no fresh asset quality trouble emerges after they have put in money into the bank,” said one of the sources. It is also learnt that if SBI consents to these conditions, the PE investors are willing to deposit a token advance of $500 million into an escrow account, and would be willing to make a further investment of up to $1-1.2 billion in YES Bank.

JC Flowers did not wish to participate in the story, while an email sent to Tilden Park Capital remained unanswered till the time of going to press. Blackstone did not want to comment on the development.

In terms of pricing, these investors are looking at a level similar to the offer made to SBI, at Rs 10 a share. “Since they would participate with SBI in the capital infusion, they want to be treated on a par with SBI in terms of pricing also,” said a banker with direct knowledge of the negotiations.

While the pricing is still under consideration, the banker believes that regulatory dispensations may be granted when a rescue plan of this magnitude is being put together.