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Credit Suisse hired to sell RBS’ Saudi Hollandi Bank stake: sources

Credit Suisse has been hired by RBS, which was looking to sell stake for many years as it retreats from international operations

Deal potentially worth approximately $1.2bn

KSA’s Public Investment Fund (PIF) considered to be likely buyer

Credit Suisse has been appointed to sell Royal Bank of Scotland’s 40 per cent stake in Saudi Hollandi Bank, sources aware of the matter said on Tuesday, in a deal potentially worth approximately $1.2 billion.

Several sources said Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), was considered a likely buyer of the stake. The fund has been buying up assets at home and abroad following plans to turn it into the world’s largest sovereign wealth fund with $2 trillion of assets.

Lots at stake

The sale would be an opportunity for a foreign buyer to gain a foothold in the kingdom’s banking sector, in which 12 commercial lenders share total assets worth nearly SAR2.22trn ($592 billion). But banking sources expect the holding to go to a domestic player.

Spokespeople for RBS and the PIF declined to comment. A spokeswoman for Saudi Hollandi did not respond to a request for comment.

RBS, which acquired the stake via its 2007 purchase of ABN AMRO, has been looking to sell it for a number of years as it retreats from international operations and tries to bolster its capital base. The state-backed bank is also still facing hefty legal bills and potential fines for alleged misconduct before and during the financial crisis.

There has been a renewed push recently within RBS to get a deal done, which fits with the Saudi authorities’ desire to resolve the ownership issue, according to one banking source with knowledge of the situation.

As a result, Credit Suisse was appointed in late-October as adviser for the sale, according to two separate banking sources.

The Saudi Hollandi stake is the largest holding within RBS’s RBS NV division. This is ultimately 97.72 per cent owned by RBS, while Banco Santander and the Dutch government have small holdings.

Winding down

RBS management told analysts on a conference call last month following the British bank’s third-quarter earnings it was working on winding down the RBS NV unit over time, but a deal relating to the Saudi Hollandi stake was not imminent, according to a transcript on RBS’s website.

The transcript also said that in July, RBS agreed to make a payment to Saudi Hollandi should a sale go ahead. The first banking source told Reuters the agreement was for a payment of €260m ($287.1m).

The approval of Saudi Hollandi shareholders on Oct. 31 to allow the bank to change its name was seen as a signal that something was on the cards, finance industry sources said.

First bank in KSA

Founded in 1926 as the first bank in Saudi Arabia, it had assets of 106.9 billion riyals as of September 30. Its market capitalisation of $3.06 bn, according to Reuters data, would value RBS’ stake at around $1.22bn.

Saudi Arabia was an attractive banking market when bumper state oil revenues fuelled strong economic growth. But conditions have changed following the fall in oil prices in the last two years, with liquidity squeezed by governments taking out money to fund budget shortfalls and profitability crimped by higher provisioning for bad loans.

Saudi Hollandi has reported flat or falling profits in the past four quarters, with its third-quarter earnings down 46.7 per cent on the back of impairment allowances.

Difficult market conditions, combined with the Saudi authorities’ preference for local ownership of banks, means a domestic buyer is most likely, with the prime candidate the PIF, according to banking sources in the kingdom.

“There is no one else out there to do this deal,” said one of the sources aware of the Credit Suisse mandate.

The fund has also been behind a number of domestic investments in recent months – ownership of a stalled financial district project in Riyadh is to be transferred to the fund, and the fund is expected to make an investment into King Abdullah Economic City.

The Saudi government already owns 10.5 per cent in Saudi Hollandi. The other main shareholder with 21.8 per cent is the Olayan family, a major local merchant group with interests in finance, real estate and food and beverage.