Mumbai / New Delhi: UK-based lender Standard Chartered Plc has decided to re-enter the bidding process for some non-core assets of Royal Bank of Scotland Plc (RBS), and is now conducting a second round of “due diligence” on RBS assets in India, China and Malaysia.
Due diligence involves an audit of a potential investment, including the inspection of financial records and assets. Non-core assets are those that a bank deems not to be central to its main business.
The move by Standard Chartered, which had earlier withdrawn from the bidding on grounds that the quality of RBS’ non-core assets in Asia was poor, comes after RBS said it was breaking up its Asian business into clusters and selling them and investment bankers called for a second round of bids.
“We are interested in India, China and Malaysia and we are in dialogue with RBS. This does not mean that we have taken a final view on the assets and decided to acquire it,” a senior Standard Chartered executive said.
The executive didn’t want to be named because negotiations are under way.
“Standard Chartered is in dialogue with RBS, like some of the other investors. The second round of bidding will be open until the first week of August,” added the executive.
Edinburgh-based RBS is selling its non-core businesses in select markets to raise funds. In India, it is present through 31 branches and has 10,000 employees on account of the 2007 acquisition of the Asian operations of ABN Amro Bank NV.
“Standard Chartered Bank has mentioned that it wants 18 months of hand-holding and would want RBS to take some shared responsibility in the entire acquisition. This demand, RBS thinks, is a little unjustified,” said a merchant banker familiar with the situation.
RBS was part of a consortium that acquired the ABN Amro business, along with Fortis group of the UK and Banco Santander SA of Spain. RBS has valued ABN Amro Bank’s India operations at about $500 million (Rs2,435 crore). The expensive purchase of ABN Amro preceded the credit crisis that knocked the banking industry, requiring RBS to be bailed out by the UK government.
“The expected valuation of the Indian assets is unrealistic. In India, the asset side of the business is not attractive. We are interested in the liabilities book, private banking portfolio and their relationship managers,” the Standard Chartered official mentioned earlier said.
After the first round of bidding, RBS did not receive any concrete bid from interested investors for the entire Asian business.
“We decided to conduct a second round (of) due diligence only after RBS decided to split the Asian business as they did not get any concrete bid for its entire Asian business,” the Standard Chartered official said.
Australia and New Zealand Banking Group, or ANZ Bank, has been the front-runner for acquiring the assets in Hong Kong, Indonesia, Singapore, Taiwan and Vietnam.
In an email reply to queries from Mint, an RBS spokesperson said: “We are well advanced in our discussions with potential bidders for the purchase of RBS retail and commercial assets in Asia. However, these discussions are commercially confidential so we will not be commenting on any market or media speculation concerning this sale.”
In February, RBS declared that it would move its India retail and commercial banking operations, which employ 2,500 people, into a for-sale, non-core division.
Impairments in the Asia retail and commercial banking increased by 44% to £171 million (Rs1,363 crore), reflecting an increase in provisioning levels across a number of consumer finance markets in the region, the bank said in a statement that month.
“Standard Chartered had submitted a letter of intent expressing its interest to buy the Asian assets of Royal Bank of Scotland in the first round of the sale process, which ended in mid-May. After conducting due diligence of the books, we decided not to submit a formal bid for the business,” the senior Standard Chartered Bank official said.
“We are also hopeful that the Reserve Bank of India may be willing to transfer some branch licences to us if we submit a proper business plan to it,” added the official.
In June, RBI declined to transfer RBS branch licences to a prospective buyer. The banking industry regulator based its decision on the fact that the proposed transaction is a portfolio sale and not a bank buyout. The central bank’s decision is expected to drive down the valuation.
Branch licences are key to the valuation because foreign banks do not get licences to open branches easily. In line with World Trade Organization rules, RBI is expected to offer 12 new branch licences every year to overseas lenders. It offers more than 12 licences, but they are not enough for the banks to tap the potential of a rapidly growing market.