Sat, Sep 15, 2012 - Page 15 News List

RBS to push ahead with Direct Line insurance flotation

BAILOUT:The bank is obliged to put up its motor insurance division for sale as a condition for accepting state aid during the 2008 financial crisis

Reuters, LONDON

State-backed Royal Bank of Scotland (RBS) confirmed it plans to press ahead with a flotation of its Direct Line insurance division in what could be the biggest listing on the London Stock Exchange in more than a year.

RBS, which is majority-owned by the government after a bailout during the 2008 financial crisis, was told to sell Britain’s biggest motor insurer by EU regulators as a condition for taking state aid.

“We believe it has a strong future as a standalone insurance group, continuing to serve its customers well while delivering attractive returns to investors,” RBS finance director Bruce Van Saun said in a statement yesterday.

Analysts have said that the initial public offering (IPO) could value Direct Line at more than £3 billion (US$4.8 billion), but the business may struggle to match that valuation in tough market conditions that have already scuppered a planned flotation by Germany’s third-biggest insurer Talanx.

Talanx abandoned its Frankfurt IPO on Wednesday, saying investors were demanding too big a discount on the company’s valuation relative to what its investment banking advisers had foreseen.

If RBS were to encounter a similar experience to Talanx, it would have the option of re-examining a straight sale or asking Brussels for an extension to the deadline. Under the EU directive, it must have sold more than 50 percent of its shares by the end of next year and its entire holding a year later.

RBS will market the offer to potential investors over the next few weeks and will be under political pressure to secure a good deal. UK taxpayers are sitting on a loss of more than £20 billion after Britain pumped £45 billion into the bank to secure its future.

Bain Capital and Blackstone had considered an offer for Direct Line, while Apax Partners, BC Partners and KKR also mulled bidding, Reuters reported in July.

Van Saun said last month RBS was planning a three-tranche sale — one this year, one next year and a final sale in 2014. RBS said yesterday it planned to sell at least 25 percent of its shares in the first tranche, in line with the minimum requirement under stock exchange rules.

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