Crunch time in the decision on future ownership of HSH Nordbank
It's down to just two contenders to buy the ailing state-owned HSH Nordbank as the protracted bidding process heads into its final phase, with the bank agreeing to exclusive talks with potential buyers J.C. Flowers and Cerberus in a joint bid. Private equity group Apollo has been asked to stay on standby in case talks fall through, REFIRE understands.
A recent report by Reuters quoted three people close to the negotiations as saying that the two potential buyout groups were being given about two weeks to negotiate a deal with the two German regional states of Schleswig Holstein and Hamburg, which together hold 89% of the bank. J.C. Flowers already owns 5% of HSH Nordbank, with local savings banks holding 6%.
The J.C. Flowers/Cerberus consortium has submitted a joint bid with a headline price of just north of €700m, said the sources.
In return for the €13bn bailout the bank received from the German state in 2009, the EU Commission requires the sale agreement to be signed by 28 February 2018. Should no deal be struck by February’s deadline, HSH would suffer the same fate as Düsseldorf-based WestLB, which the EU Commission instructed Germany to wind down in 2012.
Consultants KPMG have put an enterprise value on the bank of €643m on the strenth of the full-year 2016 figures. Given the looming deadline, the offers were never likely to approach that figure, given that they are a bid for the full bank, without hiving off the non-performing loans in its portfolio or dividing it up into a 'good' and a 'bad' bank as with banks such as WestLB or Hypo Real Estate.
HSH had total assets of €79bn as of June 2017 and is expecting a slightly higher pretax profits over €173m for the first nine months of the year. The bank is benefiting from early signs of recovery in the shipping industry, the source of many of its woes when the sector slumped in the financial crisis.
New business rose about 10% to €6.4bn in the year to September, up from €5.8bn in the same period of the previous year. The company nearly halved its non-performing loans in the non-core bank from €13.6bn at year-end 2016 to roughly €8bn at end-September, a figure expected to drop to below €4bn this year.
It still appears unclear what conditions are attached to the the J.C. Flowers/Cerberus consortium bid, including how state guarantees against possible future HSH losses will be treated.
The Reuters sources said that Socrates Capital, still a contender last month, had meanwhile dropped out of the running, while although its offer was nominally the highest, was deemed the least secure in terms of transaction security.
Local media in Kiel and Hamburg have been speculating on the likely fallout effects if the J.C. Flowers/Cerberus consortium bid succeeds. The bank has 750 staff in Kiel, while a new private equity owner is likely to favour one company headquarters, almost certainly Hamburg.