May 4, 2018 / 10:15 AM / 5 months ago

Germany's DZ Bank to sell parts of DVB after muted interest for whole business: sources

LONDON/FRANKFURT (Reuters) - Germany’s No.2 lender DZ Bank plans to sell certain assets of its troubled ship and aircraft financing division DVB after receiving muted interest for the whole business, four sources familiar with the matter said.

File Picture: The headquarters of DZ Bank are pictured in Frankfurt July 23, 2010. REUTERS/Ralph Orlowski

The sources, who declined to be identified due to the sensitivity of the matter, said DZ Bank, which is also the umbrella organization of German cooperative bank chain Raiffeisen-Volksbanken, would start by selling DVB’s aviation and land transport finance portfolios, followed by its shipping and offshore portfolios.

Two of the sources said asset managers Apollo Global Management (APO.N) and Cerberus Capital Management were interested in the aviation segment. Cerberus and Apollo did not immediately respond to requests for comment.

Another source said there was potential interest from Japanese buyers including financial services firm Orix Corp (8591.T). Orix declined to comment.

Orix in the past has acquired shipping loans from the Royal Bank of Scotland (RBS.L).

One source said the first round of bids for the aviation and land transport portfolios are expected later in May, with final bids due in July. The source said the bank would launch the sale of the shipping and offshore segments in the autumn.

    DZ and DVB both declined to comment when contacted.

DVB, previously among the leading lenders to the shipping industry, saw its annual pretax loss triple last year to 774 million euros ($926 million) and DZ Bank said in February it had raised provisions for bad shipping loans and was considering “all options” for the unit.

DVB is unusual in banking because it straddles both aviation and shipping, and both lending and leasing – a combination rarely found in one package.

“DZ Bank has decided to now opt for portfolio sales and is no longer trying to sell the bank as a whole,” one of the sources said.

“The aviation business is strong and that market is attractive. One of the issues they are going to have to face are the problems with the shipping portfolio and whether they can find enough interest for it.”

DZ Bank’s Chief Executive Wolfgang Kirsch had said on Feb. 27 that it had already received initial expressions of interest for certain portfolios and parts of DVB.

Sources told Reuters in February that the Bank of China (BOC) and Industrial and Commercial Bank of China (ICBC) had been among the suitors looking at a potential purchase of DVB Bank. Others included Apollo, they added.

One source said ICBC and BOC looked at the bank but did not make any offer.

Since then, other sources said Canadian private equity group Onex (ONEX.TO) had also expressed interest, but did not pursue an approach. Onex did not respond to requests for comment.

It was unclear what offer was made although it was deemed too low by DZ Bank, the sources said.

DZ Bank’s Chief Financial Officer Cornelius Riese in February separately ruled out any fire sales, adding that the wind down of DVB would take a while.

“None of us are so naive as to believe that the DVB theme will be solved by the end of the year,” said Riese.

DVB Bank’s lending volume by the end of 2017 totaled 19.4 billion euros, with shipping accounting for 9.5 billion euros, followed by aviation at 6.1 billion euros, the offshore business at 1.8 billion euros, land transport at 1.4 billion euros and other activities making up the remaining 600 million euros, according to data from DZ Bank’s annual presentation.

SHIPPING

DVB has scaled back new business, but tough shipping conditions continue to weigh on DZ Bank.

One of the issues for potential buyers would be the cost of refinancing the shipping loans in the future. While DVB benefits from DZ Bank’s AA minus rating, it would probably be downgraded significantly as a standalone business, according to finance sources.

“Segments of the shipping portfolio have been touted for consideration in the past. There are some toxic loans in there, so they may have to take a huge hit to get rid of it” another source said.

The global shipping sector is coming out of near decade long downturn caused by an over-ordering of ships and weaker demand.

German banks were among the biggest players in shipping finance before being saddled with tens of billions of dollars in loans that became toxic and sources say much of this debt is unlikely to be recouped in full.

($1 = 0.8361 euros)

Additional reporting by Hans Seidenstuecker in Frankfurt, John Tilak in Toronto and Taiga Uranaka in Tokyo; Editing by Adrian Croft and Susan Fenton

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