RBS's mooted insurance sale could drag on
LONDON (Reuters) - Royal Bank of Scotland Group Plc's prized insurance arm looks set to go back on sale just months after a previous selloff was abandoned, and getting top price could be even more difficult than last time.
The assets would attract plenty of interest if, as expected, Brussels forces its sale, yet the unit's sheer size and the tough market it operates in make a quick deal unlikely.
RBS's insurance businesses, including Britain's biggest motor insurer Direct Line, could be put on the block as early as Tuesday to win EU approval for billions in state aid the lender has received, people familiar with the matter have told Reuters.
An auction of the unit, which analysts value at about 6 billion pounds, would come just nine months after RBS pulled an earlier disposal attempt because it failed to attract an acceptable offer in the wake of the global financial crisis.
While market conditions have improved since then and the assets remain highly regarded, RBS might still struggle to achieve the price it wants due to a limited number of potential buyers.
"They are good assets, so they should be saleable, but the number of people who are really in the market for assets of that size is hard to say," said S&P Equity Research analyst Tony Silverman.
"For someone with no existing presence in the UK to get into what would normally be seen as one of the most competitive and mature markets in the world ... it doesn't automatically get to the top of the strategists' lists."
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RBS' flagship insurance business Direct Line is Britain's biggest motor insurer by far, providing cover to about a third of the cars on the country's roads.
Last time, the assets attracted interest from European insurers including Zurich Financial Services AG, Generali SpA and Allianz SE, along with Allstate Corp of the United States.
"The same crowd would probably look at it again, assuming the valuation is more realistic," said a banker, who covers the insurance sector. "Last time, RBS's price expectation of around 7 billion pounds was just crazy. Four to five billion pounds is more realistic."
He said private equity firms may look at the businesses but would probably need to partner with a trade buyer who would raise the bulk of the debt needed to finance a purchase.
Britain's financial sector-focussed takeover vehicle Resolution Ltd is prioritising life insurance deals and looks unlikely to take part.
Price proved a stumbling block in the first auction, partly because the disposal attempt, launched before crisis-struck RBS received a life-saving injection of government cash in October last year, was widely seen as a fire sale. Similar factors could apply in any fresh disposal imposed by regulators.
"They'll be back in the position of being a forced seller, or that's how people will look at it," said Oriel Securities analyst Mike Trippitt. "But I would have thought it would make anyone stop and think about it. It's one of those once-in-a-decade opportunities."
RBS also faces headwinds in the form of other auctions competing for the attention of insurance-focussed investors, including the disposal of Dutch bancassurer ING Group NV's insurance operations, ordered by Brussels last week.
Another option for RBS could be a flotation or IPO.
S&P's Silverman reckons that should RBS' attempts to find a buyer fail, its insurance assets could be natural IPO candidates, generating secure cashflows in mature markets that would appeal to British income investors.
(Editing by David Holmes)
