A strong start to the year has taken enough pressure off Dutch bancassurer ING Group to allow it to substantially delay or even potentially scrap the expected 2011 flotation of its insurance business.
The talk of ING rethinking its timeline for disposing of the insurance business points to a dilemma facing other European state-aided banks: do they sell quickly and get on with the restructuring or wait for a better price down the road?
ING has to dispose of the insurance business as a consequence of the €10 billion [$12.41 billion] of state aid it received in October 2008. While it has until the end of 2013 to do so, it had been expected to launch at least one IPO for some or all of the business next year.
But last week ING beat all expectations with a strong first-quarter profit, which analysts say has proved the business’s underlying ability to generate capital and given management room to breathe on the disposal.
“If the momentum can be kept up, the auguries for a successful IPO of the insurance business at a proper valuation look to be strengthening,” KBW analyst Christopher Hitchings said in a recent report.
Hitchings and others contend that ING has proven it can be a profitable, cash-generating business that will have ample capacity in its current configuration to ultimately pay off its state aid and other debts. Given that, they say, it now has the time to seek the best possible configuration for the insurance sale.
Analysts estimate that the IPO could fetch at least book value at the time of any offering, or €15 billion [$18.61 billion], with considerable upside possible if markets improve.
European shares are down 3 percent so far in 2010 but have risen 18 percent over the past year as the global economy embarked on a recovery after a brutal financial crisis.
SELLING FROM STRENGTH
ING is not the only European bank selling assets that suddenly seems to have a number of options, even if the assets are the biggest on the block.
Others are also in something of a position of strength after showing they were on the road to economic recovery.
Italy’s Intesa Sanpaolo SpA is mulling timing and other options for its sale of asset manager Banca Fideuram, while UniCredit is considering the future of its asset manager, Pioneer.
Meanwhile Sweden’s SEB has no shortage of high-profile suitors for its loss-making German business, and Royal Bank of Scotland has no fewer than five potential buyers for its WorldPay payment processing business.
In Britain, two different tracks are at work, as RBS moves to sell assets with some speed while peer Lloyds bides its time until later in its sale window.
Biding time can have its benefits, as AIG proved with the sale of its Asian operations to Prudential.
By waiting a year for markets to settle and the credit crisis hangover to start subsiding, AIG was able to extract a price for those Asian businesses more than three times what they had been offered previously.
At least in ING’s case, some analysts think that if the business keeps improving the way it has been, even a sale may ultimately prove unnecessary.
“We think ING can spin off most of ING Insurance to shareholders, and avoid IPO discounts and/or forced selling,” RBS analyst Thomas Nagtegaal said in a recent note.
ING’s prospective insurance IPO had been shaping up to be one of the blockbusters of 2011. The world’s sixth-largest insurance business, ING has substantial positions in all the world’s major markets and a high-profile brand.
That assumes, though, that there is no trade sale first. ING management has made clear from the start it prefers an IPO or two IPOs over a sale to competitors.
But since the $35.5 billion deal between Prudential and AIG, investment bankers have seen ING’s Asian operations as a prime target for other European insurers.
“The most important decision for ING management is the timing, method and price at which they will (gradually) exit the insurance/asset management business,” Rabobank analyst Cor Kluis said in a note.
(Editing by Sitaraman Shankar)
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