Hong Kong / Tokyo: Mitsubishi UFJ Financial Group is in talks to buy the project financing unit of the Royal Bank of Scotland, sources said, in a deal reportedly worth $6.4 billion and aimed at accelerating the overseas expansion of Japan’s biggest bank.
The deal would give MUFG a strong foothold in lending for energy and other infrastructure projects in Europe, the Middle East and Africa, propelling its growth outside its sluggish home market.
For the Royal Bank of Scotland, the sale would generate cash to repay taxpayers for a bailout during the financial crisis. The British government controls 84 percent of the bank’s voting rights and is pushing it to unload assets.
Two sources familiar with the matter told Reuters the banks were in negotiations on the sale of RBS’ project finance assets.
“Japanese banks are happy to look at any assets global banks are selling, given poor growth in Japan,” said Daniel Tabbush, a bank analyst at CLSA in Hong Kong.
He said MUFG probably did not have huge capacity to absorb big deals, because under the new Basel III regulations the bank was probably not well capitalised.
“So, if it’s a small deal they don’t need to raise capital. RBS is forced to do this and that does not mean this is a bad asset,” he added.
MUFG, which took a one-fifth stake in US investment bank Morgan Stanley at the height the financial crisis and has been actively looking for more deals overseas, declined to say whether it was in talks with RBS.
A RBS spokesman in London declined to comment.
“No decision has been made. This is all we can say,” said Tomohiro Kosaka, an MUFG spokesman.
Japanese markets were closed on Wednesday for a national holiday. Shares of MUFG closed flat on Tuesday at ¥367.
MUFG submitted a 4 billion pound final offer last month and is expected to sign a deal with the British government by the end of the year, with an eye to completing the transaction in the first half of 2011, the Nikkei first reported on Wednesday.
The right move?
RBS’ project financing unit is one of the non-core operations that the British government has asked the bank to sell to pay back public funds, the newspaper said.
MUFG is looking to buy RBS’ assets in railroad, energy and other infrastructure projects, as well as take on several dozen staff, the Nikkei said.
“Some of the other Japanese banks, such as SMFG, are aggressive at project finance lending in Asia,” said CLSA’s Tabbush, referring to Japan’s third biggest bank.
“Maybe that is one area that MUFG has seen positive execution from SMFG and want to go in.”
MUFG is one of Japan’s most active lenders overseas with a sizable presence in the United States.
It bought out UnionBanCal Corp, a holding company of California-based Union Bank, in 2008 and spent $9 billion for the stake in Morgan Stanley in 2008.
Majority nationalised RBS meanwhile, has already sold a number of assets to satisfy European regulators for taking taxpayer help.
It has raised over £4 billion from the sale of a network of over 300 UK branches, most of its holding in the RBS Sempra commodities joint venture, and an 80% stake in the WorldPay payment processing business.
It has also raised over £1.5 billion from selling a string of assets over the last 18 months, as chief executive Stephen Hester streamlines the bank and reverses a decade-long acquisition spree by his predecessor.