Stanchart buys Grindlays for $ 1.34 bn

Stanchart buys Grindlays for $ 1.34 bn
ENS ECONOMIC BUREAU

MUMBAI, APR 27: Australia and New Zealand Banking Group Ltd (ANZ) on Thursday said it would sell its Grindlays unit to Britain's Standard Chartered Plc for US $ 1.34 billion in cash, cutting its exposure to emerging markets. The buy would rapidly expand Standard Chartered's access to the Middle-East and a strong base in India, home to one of the world's largest and growing middle-class populations, bolstering the group's push to become the leading bank in emerging markets.

The combination of the two businesses will position Standard Chartered as the leading international bank in India, Pakistan and Bangladesh and second in the UAE (United Arab Emirates) and Sri Lanka, based on total assets.

The combined business will have around 9,000 employees and 116 branches in 17 countries in the region, with over 2.2 million customers. "This is an excellent opportunity to acquire a well-managed, quality business at the right price," said Standard Chartered group chief executive Rana Talwar.

"It will position us to take advantage as the region, with its rapidly growing middle class, opens up to e-commerce and new banking products," he said in a statement. For ANZ, the sale of its core international business switches the group's foreign focus from South Asia and the Middle East to the Asia-Pacific, closer to home. "The transaction is a substantial step in our strategy to reduce group risk and complexity," ANZ chief executive John McFarlane said in a statement.

Most of Grindlays' 870,000 customers are in India, where ANZ saw huge opportunities in retail banking but was only just beginning to turn it into a profitable business after 16 years of owning it. Standard Chartered's big step follows its recent purchase of controlling stakes in Nakornthon Bank in Thailand, Metropolitan Bank in Lebanon and its acquisition of the global trade finance business of UBS AG.

Standard Chartered said it believed the acquisition, which had been anticipated in the market, would be earnings positive after amortisation of goodwill in the first full financial year after the deal. The British bank also said it expected to extract annual cost savings of $110 million after three years.

One-off merger costs of Grindlays' 116 branches in 13 countries with Standard Chartered's 57 branches in nine countries in the region were expected to reach about $160 million over the first three years after the purchase was completed. The deal was expected to be completed by the third quarter of 2000 subject to regulatory approvals in Australia, India, Pakistan and Bangladesh. ANZ said it would receive dividends of $500 million from retained earnings at Grindlays in addition to the $1.3 billion in cash. The cash sale price was 2.3 times the business's book value and 14.2 times the annualised profit after tax for the six months to March 31, 2000. Standard Chartered valued it at 12.9 times an adjusted calculation of Grindlays annualised first half profit.

The net profit from the sale would be more than A$ 400 million ($ 236 million), ANZ said, even if it had to pay out more than A$ 460 million in possible claims in a long running dispute between Grindlays and the National Housing Bank in India. ANZ said it would spend a A$ 1 billion of the sale proceeds to buy back its shares on the market, in what the group called one of the largest ever single buybacks in Australia.

McFarlane said while the group was open to acquisitions, that was not ANZ's focus and the remaining funds from the sale were likely to be returned to shareholders later. "You can assume it's really the start of a programme to manage our excess resources," McFarlane said of the A$ 1 billion buyback.

Analysts had largely expected the sale and had said they considered a price of around $ 1.5 billion as good for a business which had been a thorn in ANZ's side. "I see the deal as positive for the developments of the strategy of the bank. I see the proceeds as broadly in line and I see the buyback as pretty much as expected," said HSBC banking analyst James Falkiner in Sydney.

ANZ said it had been planning to sell Grindlays for the past year in line with its stated aim of focusing its international business in the Asia-Pacific region, and speculation had been rife over the past month about a range of suitors. The group launched a three-year A$ 50 million investment programme in Grindlays this year to spruce it up ahead of a sale, and McFarlane said the work had paid off.

"As such the business is performing better in India, it has a better strategy than it has had for some time, it has a stronger management than it had before and therefore it's a more valuable business originally to us than it was and a much more valuable business to other people," he told reporters.

ANZ has been on a campaign over the past two years to reduce its risk exposure, first shutting its London capital markets trading operation and its Australian institutional broking business nearly two years ago. With the sale of Grindlays it would be cutting its emerging markets credit exposures by about A$7 billion. "Following this transaction, the bottom line is we now have the foundation at ANZ that we want," McFarlane told reporters.

He said the group was now more likely to expand rather than contract, focusing on E-commerce, but said it was not yet ready to pounce on the nation's fifth largest bank, St George Bank Ltd, in which it holds a strategic stake under 10 per cent.