India’s struggle to work through bad corporate loans is about to shift from overburdened bank boardrooms to where it should be: in the hands of experts. Investment firms J.C. Flowers, Apollo and Cerberus are leading the charge, says ugalani
. The ultimate buyer will pay 15% of the bid in cash and issue securities to Yes Bank for the rest. That so-called pass-through paper will rise in value if the final amount salvaged turns out to be better than its initial estimate.
Of course, these legacy loans have been in trouble for a while. What distressed debt investors are really looking forward to is a time when they will be able to get hold of ones that have only recently gone sour. That’s where recovery rates tend to be higher. Competition is ramping up, too: State banks may soon follow suit in pursuing market-based solutions. The government is also setting up its own bad bank.
The timing is right: The share of gross non-performing loans in India’s banking sector fell to a six-year low of 5.9% in March. That figure is now regarded as largely reliable as a result of the Reserve Bank of India kicking off a review of asset quality at lenders in 2015. Some two years later the central bank forced a “dirty dozen” companies comprising a quarter of total duff loans at the time into insolvency courts.
The competitive auction will boost Yes Bank’s collapsed $4.6 billion market capitalisation as it prepares to raise $1 billion to bring its equity capital ratio closer to the level of most its non-government-controlled peers. Private equity firms Carlyle and Advent are fronting that cash call, report local media. The bank’s board is meeting on Friday to judge proposals. Investors all round have lots of reasons to say yes to Yes.
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