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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Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
Midstream & Downstream
Global liquid fuels
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)