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MUMBAI : Asset Reconstruction Co. of India (ARCIL) has emerged as the single challenger bidder to acquire Yes Bank’s 48,000 crore bad loan portfolio, two people aware of the matter said. The Avenue Capital-backed ARC has also tied up with private equity firm Cerberus Capital to finance the bid, the people said on the condition of anonymity.

The bid also marks the return of Cerberus to the Yes Bank asset sale, which it had lost in the first round.

Despite being a strong contender, the private equity firm had lost out to JC Flowers ARC, as it did not own an ARC.

After accepting the term sheet from JC Flowers, Yes Bank sought expressions of interest under the Swiss Challenge method, the deadline for which ended on Tuesday.

Emails sent to ARCIL and Cerberus Capital went unanswered.

Under Swiss Challenge for Yes Bank’s bad loan sale, only an ARC can make the counter-offer, and the bid must be at least 5% higher than the anchor bidder’s.

This means that since anchor bidder JC Flowers ARC had offered 11,183 crore, the ARCIL counter-bid is at least 11,750 crore. JC Flowers ARC can still match the ARCIL counter-offer by mid-September.

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Under the transaction, the stressed loans will be sold in a 15:85 structure, with 15% of the agreed amount to be paid upfront in cash to Yes Bank, and the rest 85% to be paid in security receipts and redeemed as the ARC recovers money from defaulters.

“This will be an outright portfolio sale under the Swiss Challenge method. There is no proposal as of now for Yes Bank to pick up an equity stake in ARCIL like in the case of JC Flowers," one of the two officials cited earlier said on condition of anonymity. “However, what is important is how will JC Flowers react to this bid," he added.

A Swiss Challenge allows rivals to outdo the winning bidder. If there is such a bid and the winning bidder refuses to match it, the challenger can walk away with the deal.

Mint had reported on 10 February that Cerberus was in talks with Blackstone-backed International Asset Reconstruction Co. to jointly acquire Yes Bank’s stressed portfolio, but the negotiations remained inconclusive.

Last week, the board of Yes Bank approved raising 8,898 crore ($1.1 billion) by selling shares and warrants to private equity investors Carlyle Group and Advent International, a move that would bolster the private lender’s capital position. The negotiations to raise capital had been on for months and reportedly took longer than expected over delays in the bank’s plan to find a partner to offload its pile of toxic assets.

With Yes bank selecting JC Flowers as the joint venture partner to buy stressed loans of 48,000 crore, the bank was able to make progress on its capital-raising plan.

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