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StanChart, RBS talks fail over valuation

StanChart, RBS talks fail over valuation
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First Published: Wed, Aug 26 2009. 12 26 AM IST

Updated: Wed, Aug 26 2009. 12 26 AM IST
Mumbai: Royal Bank of Scotland Plc, or RBS, has indefinitely suspended the sale of its assets in India, China and Malaysia after the first round of negotiations with Standard Chartered Bank Plc broke down.
“Negotiations have been suspended as we could not arrive at a valuation for the assets in India, China and Malaysia, acceptable to both buyer and seller. The sale has been suspended indefinitely,” said a person familiar with the development. He did not want to be identified.
Edinburgh-based 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.
In India, RBS is present through 31 branches and has 10,000 employees, following its 2007 acquisition of the Asian operations of ABN Amro Bank NV.
The retail and commercial banking operations of the bank in India have been classified as non-core business and are up for sale. Non-core assets are not central to a bank’s main business.
Earlier this month, Australia and New Zealand Banking Group (ANZ) acquired RBS’ retail and commercial banking operations in Taiwan, Singapore, Indonesia and Hong Kong for about $550 million (Rs2,684 crore). It also acquired the onshore global banking and markets (GBM) and global transaction services (GTS) operations in the Philippines, Vietnam and Taiwan (excluding securities).
“RBS had signed an exclusivity agreement with Standard Chartered Bank to negotiate the sale of assets in India, China and Malaysia which expires at end of August,” said another banker familiar with the development who spoke on condition of anonymity.
An RBS spokesperson said: “RBS is in advanced stages of discussions with potential bidders for the sale of retail and SME assets in countries that were included in the sale process but excluded from the announcements made so far and we hope to make further announcements shortly.”
A Standard Chartered Bank spokesperson declined comment and said, “We do not comment on market speculation.”
A third person familiar with the development, who too did not want to be identified given the confidential nature of deal-making, said: “Standard Chartered Bank has been willing to pay a little over $100 million for the retail and commercial banking assets. This does not include the valuation of the branches.”
“There are two sets of valuations—one for the assets and the other for the assets and branches. This is because no one knows whether the Reserve Bank of India (RBI) would permit the transfer of branch licences,” he added.
RBI had earlier informed RBS that the transfer of branches would not be possible 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 the prospective buyers have no presence to service RBS’ existing clientele, said a senior RBS official who did not want to be identified.
“After checking RBS’ books, particularly the credit card portfolio, Standard Chartered proposed that both the banks should share the losses if it goes beyond a particular level in the first three years of acquisition. This was not acceptable to RBS,” added the third person familiar with the development.
In its half-yearly income statement this month, Standard Chartered Bank had stated that it is in discussions to buy some small businesses in India and China, which may or may not result in a transaction. The bank had also clarified that if the transaction goes through, the consideration is likely to be in the “low hundreds of millions of dollars”.
Asset sale: In India, Royal Bank of Scotland has 31 branches and 10,000 employees. Simon Dawson / Bloomberg
“We are not sure if branches would be a part of the deal as it is subject to regulatory clearance. During the due diligence process we have noted that of the 31 RBS branches in India, there are 10 locations where Standard Chartered has no operations,” said a commercial banker who did not want to be identified.
“India is hard bargain and if Standard Chartered does not get branches, the price of the portfolio will definitely come down drastically. In Malaysia as well, the asset quality is an issue and there are considerable regulatory hurdles in China,” added the same banker.
StanChart currently has 90 branches in India and has received RBI’s approval to open four. The bank will open these branches by the end of this year.
India is a key market for Standard Chartered and contributed 19%, the second highest after Hong Kong, to the bank’s profit in the first half of 2009. The wholesale banking operations of StanChart in India emerged as the largest contributor to the lender’s global revenue.
The bank’s operating profit from Indian operations, however, is down 13.20% to $526 million for the half year ended June.
However, a second commercial banker, who is involved in the negotiations said on condition of anonymity that Standard Chartered is still in the race and as and when the sale process resumes, Standard Chartered will be approached first.
According to him, DBS Bank Ltd of Singapore has also renewed interest in acquiring RBS’ assets.
A spokesperson for DBS Bank India 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.”
“DBS’ priority is to pursue organic growth opportunities which extend our Asia banking franchise. In any inorganic initiative we pursue, we always adopt a disciplined approach and will only do the deal if it fits our strategic initiatives,” the spokesperson added.
Currently, DBS operates in India and has 10 branches, providing financial services to individual clients, small and medium-sized enterprises and blue-chip corporations.
The bank’s net profit for the year ended 31 March increased to Rs259 crore from Rs65 crore in the previous year.
RBS, in which the UK government now holds around 70.3% stake, reported a net loss of £1.04 billion (Rs8,320 crore) in the first half of the year. It is exiting from many of the 54 markets after posting the biggest loss in UK corporate history last year.
anita.b@livemint.com
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First Published: Wed, Aug 26 2009. 12 26 AM IST
More Topics: StanChart | RBS | Asset sale | Asia assets | India |