GE scotches talk of Chinese bid for its Czech bank with IPO announcement

GE scotches talk of Chinese bid for its Czech bank with IPO announcement
US giant GE has been trying to sell a list of banks in CEE
By bne IntelliNews April 11, 2016

GE will float its Czech banking unit on the Prague Stock Exchange, the US giant announced on April 11. The IPO of the sixth biggest bank in the Czech Republic by assets will be one of the largest in Central and Eastern Europe for some years.

The plan to list the bank, which GE has been trying to offload for some time, comes as something of a surprise. The US company has been primarily aiming to sell its Central European units to strategic investors as it looks to pull back from the financial sector across the globe. Recent speculation had suggested the bank was finally set to find a buyer, with a Chinese suitor apparently about to acquire the lender to use as the base for a regional banking group.

GE Money Bank said it will float all its ordinary shares on the Prague Stock Exchange (PSE), with a majority aimed at institutional investors. If successful, it would be the third bank traded on the Prague Stock Exchange (PSE), after Komercni Banka and Erste Bank, and the fourth financial sector stock including Vienna Insurance Group (VIG).

“This is an exciting moment for GE Money Bank as we embark on the next stage of our growth in the Czech Republic”, CEO Tomas Spurny said in a statement. However, the failure to find a buyer for the Czech unit could be seen as somewhat surprising given that the market is often described as a "perfect" banking market because of its stability.

“The possibility of an IPO had long been mentioned in passing, but we were expecting the more likely option to be a direct sale to one of the interested parties," Milan Lavicka, an analyst at Atlantik, noted on April 11.

On the other hand, GE's recent disposals in Poland and Hungary were both state driven. The US company finally managed to push through a deal to sell its 87.23% stake in Poland’s BPH bank on April 1, after stripping out a huge portfolio of forex mortgage loans. Last year, the Hungarian government bought Budapest Bank; the new owner says it plans to float the lender in the next year or two.

While the slow and steady Czech banking market is anything but exciting, it had appeared in recent weeks that GE's local unit could finally have piqued some serious interest. The presumed favoured buyer was China Energy Company Limited (CEFC), which is reportedly planning to establish a Central European banking group.

The company has been on an asset-buying spree in the Czech Republic and Slovakia.  Local media had reported that CEFC – possibly through Czech/Slovak partner J&T Finance Group – had only just failed to wrap up a deal with GE in time for it to be revealed during the Chinese president’s official visit last month.

Big splash

Why a deal has not been pushed through is unclear, though CEFC might have struggled to convince banking regulators in Prague and Frankfurt that it has the credentials - and transparent ownership - to run a large bank. 

An IPO of 100% of GE Money Bank will make a big splash on the PSE, and could prove a challenge. GE Money Bank has announced its "intention to apply for admission of all its ordinary shares to trading on the prime market of the Prague Stock Exchange".

The bank has an equity value of CZK27.3bn, GE Money Bank said in its statement, but ahead of the planned IPO will pay a CZK4.5bn dividend to its sole shareholder, GE Capital International. Analysts estimate the value of the lender at CZK40bn-60bn (€1.48bn-2.2bn). That would mean the deal would outstrip the privatisation of Polish miner JSW, which raised PLN5.4bn (€1.3bn) in 2011.

Austria's Erste Bank, which owns the country's biggest retail bank Ceske Sporitelna, has the largest market capitalisation of any listed company on the PSE at €10.56bn. Other financial stocks include Societe Generale-owned Komercni Banka, which ranks third over all with a market cap of €7.31bn, and VIG, which has the the fifth largest market cap at €2.57bn. GE Money Bank would likely have the sixth largest market cap on the exchange.

That looks a lot for the small PSE to swallow, especially in the current climate. Average trading volume on the bourse fell 21% y/y in the first quarter, with the blue-chip PX index "dragged down above all by financial stocks", Komercni banka analysts pointed out recently.

The PX index outperformed some of the major markets but lagged behind main regional indices in the first quarter, the analysts note. VIG was the “biggest loser” after a profit warning and an unexpected dividend cut. A large IPO in the sector could clearly pose a risk to other financial stocks.

The last IPO on the Prague bourse was carried out by Kofola. The Czech-based soft drinks producer began trading on December 2, and debuted a week later in Warsaw. 

GE Money Bank, which will be re-branded, has nearly 1.17mn retail and commercial customers (over 11% of the Czech population) and the fourth largest network of branches (229) – many serving underserved Czech cities and towns, where it sees a chance for making greater inroads. GE says the unit has a dividend policy framework to pay out at least 70% of net profit. The lender recorded a net profit of CZK4.5bn last year.

The IPO “will mark another milestone towards achieving GE’s objective of reducing its financial services assets, in line with the broader strategy of focusing on investment and growth in its technology and industrial businesses", said Richard Laxer, president and chief executive of GE Capital International.

The bank said Citigroup, Goldman Sachs International and J.P. Morgan have been appointed as joint global coordinators and joint bookrunners, while Wood & Co was acting as joint-lead manager and listing agent.