Mumbai: Royal Bank of Scotland Group Plc (RBS) has resumed asset sale talks with Standard Chartered Plc, after the first round of negotiations broke down in August when the two parties could not arrive at a consensus on valuation.
The merchant bankers are working on two sets of valuations—one for the RBS assets and the other for the assets and branches.
“The suspension of talks in August was with an understanding that Standard Chartered Bank would come back to the negotiating table,” said a commercial banker familiar with the development. “Since there was disagreement on pricing, this break gave RBS the much needed time to come back with a better understanding of the book and clarity on valuation.”
“In the second round of discussions, there is a possibility that some new player would enter the race,” said another banker familiar with the development, who also spoke on condition of anonymity.
RBS had signed an exclusivity agreement with Standard Chartered Bank to negotiate the sale of assets in India, China and Malaysia, and this expired at the end of August. According to the second banker, Singapore’s biggest bank DBS Group Holdings has also renewed interest in acquiring RBS assets.
An RBS spokesperson said, “RBS is in ongoing discussions with bidders for the remaining retail and SME (small and medium enterprises) assets it has decided to sell in Asia and will make further announcements, as appropriate, in due course.”
A spokesperson for DBS’ Indian unit said: “India is an important and strategic market for DBS and we are committed to growing our presence and business here. As a policy, we do not comment on market rumours and speculation on our M&A (merger and acquisition) activities.”
Standard Chartered Bank’s chief executive for India and South Asia Neeraj Swaroop told PTI on 10 September that the bank is “actively evaluating” acquiring RBS’ India assets and “remain(ed) in conversation”, but that no decision had been taken.
The key to valuation, it seems, is the branch network of RBS in India. “Standard Chartered Bank is not willing to pay anything beyond $100 million for the assets as there is still no clarity whether the Reserve Bank of India (RBI) would permit transfer of branch licences. RBS was looking at a valuation of about $200 million,” said the first banker quoted in the story.
RBI had earlier informed RBS that the transfer of branches to the prospective buyer would not be allowed as this is a portfolio sale, not a bank buyout.
RBS is trying to convince the Indian banking regulator to transfer branch licences in those locations where prospective buyers have no presence to service RBS’ existing clientele, said a senior RBS official.
In India, RBS has 10,000 employees, following its 2007 acquisition of the Asian operations of ABN Amro Bank NV, and 31 branches. There are at least 10 locations where RBS is present but Standard Chartered has no operations.
Standard Chartered has 90 branches in India and has received RBI approval to open four more. The bank will open these branches by the end of this year.
Standard Chartered is firm on inserting a handholding clause in the sale document to ensure that if the losses in the RBS credit card and unsecured business go beyond a particular level, RBS would have to pay for them.
Standard Chartered could pay a little over $100 million if the branches form a part of the deal. “RBS’s asset size in China and Malaysia is very small and there are regulatory issues in China. The asset quality in Malaysia is a cause of concern. Hence, the entire deal negotiations are centred around Indian assets,” said the first banker quoted in the story.
RBS is in the process of selling its retail and commercial banking operations, classified as non-core businesses, in select markets to raise funds. Morgan Stanley is advising RBS on the sale.