Sale process for HSH Nordbank heads into final straight
The highest bid from the three remaining bidders for the troubled Kiel- and Hamburg-headquartered HSH Nordbank is coming in at about €200m, according to a recent report in the Wall Street Journal. Following an EU decree, the bank has to be sold off by its current owners, the states of Hamburg and Schleswig-Holstein, by February 28th. The bidders are said to be American private equity groups Apollo with JC Flowers in a combined bid, Cerberus and UK group Socrates.
‘These binding bids take us a big step closer to a successful privatisation solution,’ said Stefan Ermisch, CEO of HSH Nordbank, in a recent statement. ‘In the future, we will support our federal state owners to the best of our ability because we regard this firm investor interest as both an affirmation and an incentive.’
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.
Still, the bank's situation has improved in the first nine months and it recently posted pre-tax profits of €201m for the period. Local politicians are divided over the step to sell off the bank at potentially lower than its book value, non-performing loans notwithstanding. If the deal goes through to one of the final bidders, it would likely get the all-clear by winter 2018. However, should the deal and the proposed business model for the bank's future fail to gain the approval of the state parliaments and the EU Commission, then all bets are off, the bank will have to cease writing new business, and it will be unwound 'in an orderly fashion' over the coming years.
On the real estate side, the bank has also been looking at creative ways to differentiate itself from other lenders over the past few years since it stepped back in to selectively lending after the years of withdrawal following the onset of the financial crisis. Michael Windoffer, head of real estate cross-border business at HSH told REFIRE his group ‘doesn’t win deals via pricing, that’s not our thing’: ‘We are reliable, fast and deliver tailor-made financing structures – that’s what our clients appreciate. At the moment, we have €20bn in loans in the pipeline globally. We did €4.6bn in new business last year and €2.3bn in the first six months of this year.’
Construction finance also accounts for a much bigger slice of new business, at around 40%, Windoffer said. ‘Our pre-letting requirements depend on location, LTC and the sponsor’s track record,’ he said. ‘We’re starting to look outside Germany, too, at Paris and London, for example. We’ve also lent more in B and C cities in Germany in the past year. For us, the lending hotspots are northern Germany and the metropolitan regions, especially Berlin and Frankfurt. The question is not how much is the LTV but what is the exit LTV and how do we get there?’