The Royal Bank of Scotland has received bids for its Greek ship finance business, banking and financial sources familiar with the matter said, following a leap in bad shipping debts at the lender over the past few months.
They told Reuters that the operation was worth about $3 billion although sources in the shipping business said that problems with lending to the industry, much of which is in a deep downturn, would affect the value of what could be recouped via a sale.
Credit Suisse and China Merchants were among the suitors bidding, the sources said.
RBS and Credit Suisse declined to comment, while China Merchants did not immediately respond to an emailed request for comment.
The British bank, which was rescued with a 46 billion-pound government bailout during the financial crisis, had previously been a top lender to the global shipping industry and its Greek office played a pivotal role. The business also includes a banking license as well as about 40 staff, the sources said.
“RBS has held preliminary discussions with a number of interested parties,” one source said. “The big difference here is they are not selling a portfolio of loans but a business, with staff in it able to do the debt collection stuff.”
RBS, which is 73-percent state-owned, is in the midst of a restructuring aimed at returning the bank to profit after eight straight years of losses. In July 2015, Reuters reported it was winding down its Greek operation and putting its shipping loans portfolio up for sale.
While the oil tanker trade has picked up, the container and dry bulk shipping industries are struggling with a glut of ships, a faltering global economy and weaker consumer demand.
One shipping industry source said part of the RBS portfolio included non-performing loans due to the worsening conditions in some sectors.
“RBS has tried to put this sale together for some time. In the past two quarters, conditions in shipping have got worse and that has had some effect on the portfolio,” the source said. “That will mean that there will have to be some price-adjustment for whatever is on offer.”
Other sources said the loans could carry a 30 percent discount in order to attract interest, adding that some buyers may be interested only in parts of the business.
“It depends on the level of interest and also how quick a sale they want,” a ship finance source said.
The bank’s total shipping exposure reached 7.1 billion pounds ($10.4 billion) in the first quarter of this year, down from 7.5 billion pounds at the end of last year.
Non-performing loans to the industry – those on which repayments are significantly in arrears – increased to 827 million pounds in the first quarter of this year from 434 million at the end of 2015, RBS said in its quarterly results.
Reuters reported earlier this week that the European Central Bank has launched a review of banks’ lending to the shipping sector. This has raised concerns among lenders that they may be required to set aside more capital and make higher loss provisions against loans to the industry.
CHINESE INTEREST
China Merchants, one of the country’s biggest conglomerates, has been looking for cheap shipping and commodities-related assets in Europe, hoping to take advantage of the market downturn.
In March sources told Reuters that China Merchants had made an informal bid to buy London’s Baltic Exchange, which has been at the heart of global shipping for centuries.
Greece agreed in April to sell a 67 percent stake in Piraeus port to Chinese shipping giant COSCO for 368.5 million euros ($416 million).
“For a Chinese bank, buying RBS’s Greek business is an inroad into Europe. For others like Credit Suisse, RBS will have to offer something more as Credit Suisse is already a big player now in Greece,” another ship finance source said.
A separate banking source added: “It is not clear if Credit Suisse’s capital position would allow them to strike a deal, especially if Chinese players are competing for the asset.”
