DealBook: Japanese Firms to Pay $7.3 Billion for R.B.S. Aircraft Leasing Unit

Tomohiro Ohsumi/Bloomberg News

7:20 p.m. | Updated

LONDON — Japanese bidders led by the Sumitomo Mitsui Financial Group agreed on Tuesday to acquire the Royal Bank of Scotland’s aircraft leasing business for $7.3 billion — the biggest divestiture yet by the British bank since it was bailed out three years ago.

R.B.S. had been trying to sell the unit for months, and the final bidders included Wells Fargo and China Development Bank, according to a person with knowledge of the matter. The person spoke on condition of anonymity because bidders in the auction were not supposed to be disclosed.

Sumitomo Mitsui Financial, the group holding company, together with the trading company Sumitomo Corporation, a joint venture partly owned by Sumitomo Mitsui, said R.B.S. Aviation Capital’s operations would be merged with their own joint leasing business, the S.M.F.L. Aircraft Capital Corporation.

The Japanese companies said in a statement that the deal would allow them to “further expand and develop the business in Asia,” which has seen a proliferation of so-called low cost carriers in recent years, as well as in other emerging markets.

International passenger demand in the Asia-Pacific region is expected to grow 7.6 percent by 2014, according to the International Air Transport Association, an industry group. Passenger demand in North America is expected to increase 4.9 percent in the same period.

The Japanese companies “are increasing their involvement in the aircraft financing business by taking advantage of an opportunity when the market is depressed,” said Paul Sheridan, head of Asia consultancy at aerospace advisory firm Ascend in Hong Kong, who has previously worked for R.B.S. Aviation Capital . “The R.B.S. portfolio is one of the best in the market. Everyone is looking to Asia for future growth.”

R.B.S. Aviation Capital, based in Dublin, owns, manages or has orders for 329 commercial aircraft, according to R.B.S.

Under the terms of the deal, Sumitomo Mitsui Financial will own approximately 60 to 70 percent of R.B.S. Aviation Capital, while the Sumitomo Corporation will control the remainder. The deal is expected to close by end of the third quarter.

By the close of trading in Tokyo, the share price of both Sumitomo Mitsui Financial and the Sumitomo Corporation had risen about 1 percent. By midday in London, R.B.S.’s stock price was up almost 4 percent.

The sale of the aircraft leasing unit is part of a move by R.B.S. to reduce its business operations and shed so-called noncore assets. The British government holds an 82 percent stake in R.B.S. as a result of bailouts in 2008 and 2009.

The bank said it would use the proceeds of the transaction to strengthen its core Tier 1 ratio, a measure of a bank’s ability to weather financial shocks, and to reduce its reliance on the wholesale financing markets. At the end of the third quarter of 2011, that ratio stood at 11.3 percent.

Bruce Van Saun, the R.B.S. group finance director, said in a statement that the deal illustrated “our progress in reducing our noncore portfolio and returning the group to a position of strength.”

Last week, the bank, based in Edinburgh, said it planned to eliminate 3,500 jobs in its investment banking division over the next three years in response to volatility in global financial markets.

R.B.S. already had eliminated 2,000 jobs in that unit in the second half of 2011, according to a company statement. The bank has shed more than 30,000 employees since 2008.

The bank also announced plans to revamp its wholesale banking division, as well as seek buyers for unprofitable operations.

R.B.S. has cut its balance sheet by approximately £600 billion ($922 billion) since 2008, and reduced noncore assets to less than £100 billion. That figure stood at £258 billion in September 2009.

Along with the sale of traditional loan portfolios, the bank has also been selling assets not traditionally associated with a financial institution.

R.B.S. announced in September that it had sold the five-star Hilton Hotel in Glasgow to the Topland Group for £35.7 million. In January 2011, the bank sold the Priory Group, an operator of long-term-care homes and addiction clinics, to the private equity firm Advent International in a deal worth £925 million.

Goldman Sachs and the law firm Clifford Chance advised R.B.S. on the deal. Barclays Capital, Sumitomo Mitsui Financial’s investment banking unit Nikko, as well as the law firm Milbank Tweed, advised Sumitomo Mitsui Financial.

Article source: http://dealbook.nytimes.com/2012/01/17/japanese-firms-to-pay-7-3-billion-for-r-b-s-aircraft-leasing-unit/?partner=rss&emc=rss