RBS to sell key insurance unit
London, September 15, 2012
State-backed Royal Bank of Scotland (RBS) is to press ahead with the forced sale of its Direct Line insurance division in what could be the biggest listing on the London Stock Exchange for more than a year.
RBS, majority-owned by the government after a bailout during the 2008 financial crisis, was told to sell Britain's biggest motor insurer by European Union regulators as a condition for taking state aid.
Analysts say the initial public offering (IPO), announced by RBS yesterday, could value Direct Line at between £2.5 billion ($4 billion) and £3.5 billion, but achieving that could prove difficult in tough market conditions that have already scuppered a stock market flotation by Talanx , Germany's third-biggest insurer.
"The recent pulling of the Talanx IPO in Germany does not read across positively for RBS, suggesting it remains a buyer's market, which may frustrate RBS's valuation expectations," Oriel Securities analyst Vivek Raja said.
Talanx abandoned its Frankfurt IPO on Wednesday, saying that investors were demanding too big a discount on the company's valuation relative to what its investment banking advisers had foreseen.
Direct Line chief executive Paul Geddes said that Talanx's abandoned IPO would have little effect on his company's prospects.
If RBS were to encounter a similar experience to Talanx, it would have the option of re-examining a straight sale or asking Brussels for an extension to its deadline. Under the EU directive, RBS must sell more than 50 per cent of Direct Line by the end of 2013 and the rest of its holding a year later.
RBS will market the offer to potential investors over the next few weeks and will be under political pressure to secure a good deal. UK taxpayers are sitting on a loss of more than £20 billion after Britain pumped £45 billion into the bank to secure its future.
The bank's finance director, John Reizenstein, said there had been positive dialogue with investors. "We've had a lot of discussions with them over the past year and there's a lot of interest," he said.
RBS is planning a three-tranche sale - one this year, one next year and a final sale in 2014. The bank said it planned to sell at least 25 per cent of Direct Line's shares in the first tranche, in line with the minimum requirement under stock exchange rules.
A source said the valuation could come in anywhere between £1.5 billion and £4 billion and that RBS could drop the IPO in favour of an outright disposal if it is at the bottom end of the range.-Reuters