The Federal Agency for Financial Market Stabilisation (FMSA), the owner of Hypo Real Estate Holding AG (HRE), which itself owns Deutsche Pfandbriefbank (PBB), has shaken off concerns around investor sentiment related to the ongoing Greece crisis to press ahead with its scheduled July IPO.
Last week, Reuters reported that the PBB had intended on publishing its prospectus on Monday but that it was delayed by the broader macro uncertainty which was feared may undermine the relative value proposition supporting the placing of PBB shares
PBB subsequently published it prospectus yesterday, just one day later than scheduled, with the IPO re-privatisation now back on track.
Citigroup and Deutsche Bank are joint global co-ordinators and joint bookrunners. JP Morgan, Berenberg and Commerzbank are also acting as joint bookrunners.
The price for shares in PBB, which begin trading today until 15 July or as soon as the full 80% share capital offered is placed, has been set at between to €10.75 and €12.75 per share. The 80% of PBB’s 134.5m shares reflects 100.9m plus an additional 6.6m worth of shares to accommodate a potential over-allotment.
This would equate to gross proceeds of between €1.156bn and €1.372bn. An initial listing on the Frankfurt Stock Exchange is scheduled for 16 July.
The net proceeds – after costs and expenses from the offering and listing of approximately €28m which include up to €17.1m in commission paid to the IPO underwriters – will be used to repay the German government’s bailout of Hypo Real Estate Group in 2009, which was the first nationalisation of a German bank in the post-war era.
At the time of the nationalisation, US private equity group JC Flowers was one of the bank’s largest shareholders owning nearly a quarter of HRE’s shares.
The Federal Republic of Germany will continue to maintain an indirect shareholding – via the FMSA and HRE – amounting to a minimum of 20.0%, but not exceeding 24.9%, for a two-year period.
PBB’s is comprised of two active business lines – pan-European real estate finance (REF) and public investment finance (PIF) – which are dubbed the bank’s strategic portfolios.
The more significant of the two components is PBB’s CRE loan book, which climbed €1.3bn, on a net basis, to €25.6bn over Q1 2014. This included €2.7bn of new business in the REF division comprised of 33 deals at an average gross margin of circa 170 basis points, according to a presentation for the bank’s Q1 results.
PBB’s PIF loan book grew by a marginal €0.1bn over Q1 2015 to €7.9bn. PBB has €685m in defaulted loans at Q1, down 17% from €827m at the end of 2014.
PBB’s aggregate loan book also includes its €25.9bn non-strategic value portfolio (VP), comprised of bonds and promissory notes as well as some real estate and public finance assets, and its €7.0bn Consolidation & Adjustments (C&A) segment which primarily includes liquid investment grade bonds sponsored by sovereign and public sector entities and more promissory notes to local authorities including German Länder.
PBB’s net loan book across all four business segments rose €1.3bn to €66.5bn over the first quarter to the end of March, the €25.6bn REF division reflects 38.5% of the total loan book.
Inclusive of all assets, such as marked ‘other assets’, cash reserves and trading assets, PBB’s total balance sheet at the end of Q1 was €75.4bn, which is inclusive of €3.6bn in equity attributable to shareholders, according to the IPO prospectus.
The turnaround from the nadir of HRE Group’s crisis has been considerable. HRE reported losses of €5.4bn for the financial year 2008, followed by a €2.2bn loss in 2009 and losses of €859m in 2010, in October of which FMS Wertmanagement, the bad bank, was formed and the good bank emerged as Deutsche Pfandbriefbank.
FMS Wertmanagement inherited €173bn of HRE Group’s balance sheet loans – which peaked at the end of 2008 at €419.7bn. Of this €173bn, €42bn came from the then newly-formed PBB and the €131bn balance coming from Depfa, the Dublin-based bank which makes loans to Ireland’s public sector.
Of this €42bn in loans from PBB, approximately €27bn was commercial real estate loans, according to a PBB presentation dated October 2010.
The following year in 2011, PBB returned to annual pre-tax profitability with €188m, followed by annual pre-tax profit of €124m in 2012, then €165m for 2013. Last year, pre-tax profitability fell to €54m, driven by €120m write-downs against Austrian wind-down institution HETA Asset Resolution.
Return on equity (ROE) before tax has steadily improved over the last three years, up from 5.5% in 2012, to 7.2% in 2013, to 7.1% in 2014 on an adjusted basis which excludes the impact of the HETA write-downs. For the first quarter, PBB reported a pre-tax ROE of 8.3%.
In a stateenf yesterday afternoon, PBB said: “PBB believes it is well-positioned on the credit and capital markets. The bank has achieved a high degree of market penetration in its European core markets; it services its clients locally as well as with cross-border transactions, and provides demanding financing solutions. Moreover, as the largest Pfandbrief issuer in Germany, PBB is also a key player on European covered bond markets.
“The bank applies strict risk management standards, refinances its business largely on a matched-maturity basis – from various funding sources – and is very well capitalised.
“The bank is determined to adhere to this conservative approach, and to enhance profitability through attractive new business. PBB believes that investors will be able to capitalise on this sustainable business model, in a growing market, and benefit from an attractive risk/return profile.”