September 26, 2018 / 12:23 PM / 22 days ago

NordLB mulls stake sale to private equity, savings banks - sources

* NordLB says hires JP Morgan, Houlihan for stake sale

* NordLB seeks 3 billion euros in fresh capital - sources

* Stake sale could be mix of public, private investors -sources

By Arno Schuetze and Klaus Lauer

FRANKFURT, Sept 26 (Reuters) - German public-sector bank NordLB, which aims to boost its capital by about 3 billion euros ($3.5 billion) to cope with bad ship loans, is considering a stake sale to a mix of private equity investors and savings banks, sources close to the matter said.

NordLB said in a statement on Wednesday that it was working on a restructuring plan that could include bringing in new investors, adding it mandated JP Morgan and Houlihan Lokey to help it negotiate with potential bidders. It gave no further details.

According to three people close to the matter, NordLB has asked for first round bids by Oct. 8 for a roughly 30 percent stake. It aims to complete a deal by year-end.

The bank and its shareholders - the German state of Lower Saxony and regional savings banks - want to restructure the bank in a way that avoids breaching European Union state aid rules as this could force an unwanted complete sale.

To do so, NordLB’s owners are mulling an option in which buyout groups would take a NordLB stake for about 1 billion euros, the sources said. Two other state-backed landesbanks - LBBW and Helaba - as well as Lower Saxony would together supply roughly 2 billion euros, they said, adding that the exact split was still under discussion.

“By bringing in private equity, NordLB wants to show that any investment occurs at market prices,” one of the people said, adding that such a move would likely help meet the EU antitrust watchdog’s requirement that state investments do not distort competition.

At the same time, that option would keep NordLB within Germany’s public banking sector, which accounts for roughly a third of loans to all German retail and corporate clients.

OTHER OPTIONS

According to the sources, the private equity investors that participated in the bidding for NordLB peer HSH Nordbank last year - such as Apollo, Cerberus and Socrates - will offer to invest in NordLB. Some of them are open to a joint deal including other landesbanks.

The buyout groups as well as LBBW, Helaba and their owners declined to comment.

Other options such as a stake sale to just one investor or a different group are also being considered, and discussions among the potential bidders are ongoing, the people added.

Another part of NordLB’s considerations are to carve out NordLB’s retail unit Braunschweigische Landessparkasse ahead of a partial NordLB privatisation and to sell the unit to the savings banks of Lower Saxony or swap it for part of their 26.4 percent NordLB stake, the sources said.

NordLB is active in financing companies, real estate, infrastructure and the transport sector. It has been dragged down by its exposure to the shipping industry, which has been going through its worst slump on record, leaving NordLB with 7.7 billion euros in bad loans as of June 2018.

NordLB is already in the market with a 2 billion euro slice of those loans, which it expects to sell at a hefty discount to face value, the sources said, adding that further portfolio sell-downs were expected once that deal is completed.

It is expecting to post a loss in 2018 and aims to slash 1,250 jobs by end-2020 to cut costs.

$1 = 0.8499 euros Additional reporting by Jonathan Saul; Editing by Emelia Sithole-Matarise

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