LONDON (Reuters) - 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 licence 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.
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."
($1 = 0.6816 pounds) ($1 = 0.8850 euros)
By Jonathan Saul, Sophie Sassard and Andrew MacAskill
(Additional reporting by Sumeet Chatterjee in Hong Kong; editing by David Stamp)
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It was shaping up to yet another dull OPEC+ meeting. Cut and dry. Copy and paste. Rubber-stamping yet another monthly increase in production quotas by 432,000 b/d. Month after month of resisting pressure from the largest economies in the world to accelerate supply easing had inured markets to expectations of swift action by OPEC and its wider brethren in OPEC+.
And then, just two days before the meeting, chatter began that suggested something big was brewing. Whispers that Russia could be suspended made the rounds, an about-face for a group that has steadfastly avoided reference to the war in Ukraine, calling it a matter of politics not markets. If Russia was indeed removed from the production quotas, that would allow other OPEC+ producers to fill in the gap in volumes constrained internationally due to sanctions.
That didn’t happen. In fact, OPEC+ Joint Technical Committee commented that suspension of Russia’s quota was not discussed at all and not on the table. Instead, the JTC reduced its global oil demand forecast for 2022 by 200,000 b/d, expecting global oil demand to grow by 3.4 mmb/d this year instead with the downside being volatility linked to ‘geopolitical situations and Covid developments.’ Ordinarily, that would be a sign for OPEC+ to hold to its usual supply easing schedule. After all, the group has been claiming that oil markets have ‘been in balance’ for much of the first five months of 2022. Instead, the group surprised traders by announcing an increase in its monthly oil supply hike for July and August, adding 648,000 b/d each month for a 50% rise from the previous baseline.
The increase will be divided proportionally across OPEC+, as has been since the landmark supply deal in spring 2020. Crucially this includes Russia, where the new quota will be a paper one, since Western sanctions means that any additional Russian crude is unlikely to make it to the market. And that too goes for other members that haven’t even met their previous lower quotas, including Iraq, Angola and Nigeria. The oil ministers know this and the market knows this. Which is why the surprise announcement didn’t budge crude prices by very much at all.
In fact, there are only two countries within OPEC+ that have enough spare capacity to be ramped up quickly. The United Arab Emirates, which was responsible for recent turmoil within the group by arguing for higher quotas should be happy. But it will be a measure of backtracking for the only other country in that position, Saudi Arabia. After publicly stating that it had ‘done all it can for the oil market’ and blaming a lack of refining capacity for high fuel prices, the Kingdom’s change of heart seems to be linked to some external pressure. But it could seemingly resist no more. But that spotlight on the UAE and Saudi Arabia will allow both to wrench some market share, as both countries have been long preparing to increase their production. Abu Dhabi recently made three sizable onshore oil discoveries at Bu Hasa, Onshore Block 3 and the Al Dhafra Petroleum Concession, that adds some 650 million barrels to its reserves, which would help lift the ceiling for oil production from 4 to 5 mmb/d by 2030. Meanwhile, Saudi Aramco is expected to contract over 30 offshore rigs in 2022 alone, targeting the Marjan and Zuluf fields to increase production from 12 to 13 mmb/d by 2027.
The UAE wants to ramp up, certainly. But does Saudi Arabia too? As the dominant power of OPEC, what Saudi Arabia wants it usually gets. The signals all along were that the Kingdom wanted to remain prudent. It is not that it cannot, there is about a million barrels per day of extra production capacity that Saudi Arabia can open up immediately but that it does not want to. Bringing those extra volume on means that spare capacity drops down to critical levels, eliminating options if extra crises emerge. One is already starting up again in Libya, where internal political discord for years has led to an on-off, stop-start rhythm in Libyan crude. If Saudi Arabia uses up all its spare capacity, oil prices could jump even higher if new emergencies emerge with no avenue to tackle them. That the Saudis have given in (slightly) must mean that political pressure is heating up. That the announcement was made at the OPEC+ meeting and not a summit between US and Saudi leaders must mean that a façade of independence must be maintained around the crucial decisions to raise supply quotas.
But that increase is not going to be enough, especially with Russia’s absence. Markets largely shrugged off the announcement, keeping Brent crude at US$120/b levels. Consumption is booming, as the world rushes to enjoy its first summer with a high degree of freedom since Covid-19 hit. Which is why global leaders are looking at other ways to tackle high energy prices and mitigate soaring inflation. In Germany, low-priced monthly public transport are intended to wean drivers off cars. In the UK, a windfall tax on energy companies should yield US$6 billion to be used for insulating consumers. And in the US, Joe Biden has been busy.
With the Permian Basin focusing on fiscal prudence instead of wanton drilling, US shale output has not responded to lucrative oil prices that way it used to. American rig counts are only inching up, with some shale basins even losing rigs. So the White House is trying more creative ways. Though the suggestion of an ‘oil consumer cartel’ as an analogue to OPEC by Italian Prime Minister Mario Draghi is likely dead on arrival, the US is looking to unlock supply and tame fuel prices through other ways. Regular releases from the US Strategic Petroleum Reserve has so far done little to bring prices down, but easing sanctions on Venezuelan crude that could be exported to the US and Europe, as well as working with the refining industry to restart recently idled refineries could. Inflation levels above 8% and gasoline prices at all-time highs could lead to a bloody outcome in this year’s midterm elections, and Joe Biden knows that.
But oil (and natural gas) supply/demand dynamics cannot truly start returning to normal as long as the war in Ukraine rages on. And the far-ranging sanctions impacting Russian energy exports will take even longer to be lifted depending on how the war goes. Yes, some Russian crude is making it to the market. China, for example, has been quietly refilling its petroleum reserves with Russian crude (at a discount, of course). India continues to buy from Moscow, as are smaller nations like Sri Lanka where an economic crisis limits options. Selling the crude is one thing, transporting it is another. With most international insurers blacklisting Russian shippers, Russian oil producers can still turn to local insurance and tankers from the once-derided state tanker firm Sovcomflot PJSC to deliver crude to the few customers they still have.
A 50% hike in OPEC’s monthly supply easing targets might seem like a lot. But it isn’t enough. Especially since actual production will fall short of that quota. The entire OPEC system, and the illusion of control it provides has broken down. Russian oil is still trickling out to global buyers but even if it returned in full, there is still not enough refining capacity to absorb those volumes. Doctors speak of long Covid symptoms in patients, and the world energy complex is experiencing long Covid, now with a touch with geopolitical germs as well. It’ll take a long time to recover, so brace yourselves.
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