UPDATE 1-Bain, Carlyle among bidders for StanChart's HK consumer finance unit-sources

Thu Apr 17, 2014 4:06am EDT

* Japan's Orix, China finance firms also in bidding -sources

* PrimeCredit unit valued at $500 mln-$700 mln -sources

* StanChart bracing for era of lower emerging market growth (Adds detail on StanChart's plans, analyst comment)

By Saeed Azhar and Stephen Aldred

SINGAPORE/HONG KONG, April 17 (Reuters) - Standard Chartered's planned sale of its Hong Kong consumer finance unit has drawn first-round bids from suitors like Carlyle Group and Bain Capital, lured by the unit's industry-beating returns, people familiar with the matter said.

The sale of PrimeCredit, which sources have said could fetch between $500 million and $700 million, is among a series of disposals planned by the Asia-focused lender. Standard Chartered, like regional peers, is focusing on shoring up its main corporate banking business to better absorb a slowdown in economic growth and lending in emerging markets.

Carlyle declined to comment, while Bain officials weren't immediately available to comment.

PrimeCredit, which specialises in high-interest loans, boasts returns on equity above rival firms. But the business is centred on high-risk, unsecured lending to Asian consumers with scant credit history, meaning it doesn't fit with the bank sees as a core mission of global corporate banking and high net worth clients, sources said.

Other bidders include Japanese financial services company Orix Corp and some Chinese non-bank finance companies, the sources said. Officials at Orix declined to comment.

The sale could be completed by the middle of the year, one of the sources said.

Having boosted profits during the wave of cheap credit that poured into emerging markets for the past decade, Standard Chartered is now slimming down as foreign money exits cooling Asian economies. It cut 2,000 jobs last year.

The streamlining follows a bigger move by key local rival HSBC. The latter has sold or closed 63 businesses in the last three years in an effort to simplify its structure, reduce risk and boost profitability.

Standard Chartered received preliminary offers for PrimeCredit this week and a short-list of bidders is expected in the next few weeks, the people added, declining to be identified as the bidding process is confidential.

A Standard Chartered spokesman said the bank is exploring strategic options for the consumer finance business but no formal decision has been made.

HIGH-RETURN BUSINESS

Recent Hong Kong banks deals have been struck at a price-to-book ratio of about two. PrimeCredit could secure about three times' book value given that it has generated a return on equity of over 40 percent in recent years, one of the sources said.

By comparison, rival Aeon Credit Service Asia has a return on equity of close to 11 percent.

Part of PrimeCredit's success is access to cheap funding from Standard Chartered and its relatively small reliance on wholesale markets, which may be an issue for non-bank suitors, one of the sources said.

The sale also comes at a time when some Asian countries are likely to experience slower economic growth and higher interest rates, making debt harder to repay.

"An increase in bad loans is also likely after Asia's credit binge in recent years, which poses risk to the region's banking systems and real economies," said Matthew Circosta, an economist at Moody's Analytics in Sydney.

Standard Chartered is separately selling its consumer finance business in South Korea, which has proved to be a tough market for foreign banks amid rising costs and intense competition.

Citigroup Inc said earlier this month it will close almost a third of its branches in South Korea, becoming the third global bank to trim its presence in the last year.

Morgan Stanley is advising Standard Chartered on the sale, sources said. Morgan Stanley was not available to comment.

(Reporting by Saeed Azhar in SINGAPORE and Stephen Aldred in HONG KONG; Additional reporting by Emi Emoto in TOKYO; Editing by Denny Thomas and Kenneth Maxwell)