Pbb raises eyebrows by opting for quick IPO

The decision by German real estate lender pbb Deutsche Pfandbriefbank to abandon its ‘dual track’ disposal process in favour of an IPO has come as surprise to many in the industry, PropertyEU has learned.

‘I’m not sure if there is enough public appetite for bank stocks like these, especially as such stocks are typically undervalued in Germany,’ said Frank Nickel, chairman of corporate finance for the EMEA region at C&W. ‘Other than institutional buyers, I’m really not sure who would buy them. It sounds as if pbb may be desperate to just get the (disposal) process over and done with – at any price.’

Analysts have also been puzzled by the move. ‘It’s very short notice for such an important undertaking,’ said one analyst who asked not to be identified. ‘That makes me wonder whether this is a last resort. The real test will be the strength of the public appetite for such a stock, not least because German bank stocks tend to be undervalued.’

In a dramatic change of heart this week, pbb announced selling the business is no longer on the table. Instead it is now planning a listing on the Prime Standard segment of the Frankfurt Stock Exchange in July this year, subject to market conditions.

‘Pbb has been realigned and its management team has successfully positioned the bank on the lending and funding markets. Today it is flotation-ready in every possible way,’ said Günter Bräunig, chairman of the supervisory boards of HRE and pbb, in a statement.

No specific reasons were given for the lender’s decision to shelve its ‘dual track’ disposal process - with the aim of either selling or floating the group - other than that the bank’s sole shareholder, Hypo Real Estate Holding (HRE) is no longer pursuing ‘the alternative sale of pbb via a tender process’.

A minimum stake of 75.1% of the share capital is planned to be placed. The German state will retain at least a 20% stake – via HRE – for a two-year period based on a respective lock-up commitment. Pbb will also redeem FMS’ (Germany’s ‘bad bank’) €1 bn silent participation within the framework of the IPO. No details regarding the share price have been given.

The public announcement of the intention to float pbb comes in the wake of resolutions passed on 10 June 2015 by the Extraordinary General Meetings of pbb and HRE, based on a positive vote by the Interministerial Steering Committee.

Deadline
Following much speculation in the industry, pbb Deutsche Pfandbriefbank announced in March that is was considering a ‘dual-track process through a trade sale or an initial public offering’. Pbb is fully-owned by state-owned Hypo Real Estate, which is required to sell pbb by the end of this year in order to fulfill a condition imposed by the European Commission for its state bailout at the onset of the financial crisis. Pbb has openly admitted that the deadline is a ‘challenge’, citing the lender’s need to ‘demonstrate the full restoration of its profit potential’.

Pbb was one of the most active lenders in Germany last year, ratcheting up €10.2 bn in new business - a new all-time high - of which real estate accounted for €9 bn. Dr. Bernhard Scholz, member of the management board at pbb, told PropertyEU that this year pbb ‘is aiming to slightly exceed that level’. In the first quarter of this year, the lender was well on its way to doing just that, with €2.8 bn in new business.

HRE has mandated Citigroup Global Markets Limited and Deutsche Bank AG as joint global coordinators and joint bookrunners for pbb's flotation. JP Morgan Securities, Commerzbank and Joh. Berenberg, Gossler & Co. will act as bookrunners.

Challenge
Nonetheless, German banks can be tricky to offload, either via a straightforward disposal or an IPO. In February, Aareal Bank agreed to buy rival real estate lender Westimmo from Germany’s other ‘bad bank’ Erste Abwicklungsanstalt (EAA) for an all-equity amount of €350 mln. The sale price represented a discount of roughly 50% to its equity book value, which stood at €575 mln in June 2014. As is the case with pbb, the European Commission had originally asked for Westimmo to be sold by the end of 2011 as part of its conditions for parent company, WestLB's, bailout. The sale of Westimmo this year comes more than three years after exclusive talks with private equity investor Apollo failed.

‘The Westimmo sale took a long time to push through,’ an analyst told PropertyEU. ‘Selling what is effectively owned by the taxpayers makes it even more tricky – even more diligence is needed. There may have been internal resistance to selling pbb to outside investors, such as the Chinese. Subsequently, an IPO may have seemed like an easier route.’