09 August 2017
Ana Botín, President of Banco Santander.
The deal, the largest in the history of the real estate sector in Spain, will entail the creation of a new company. Banco Popular will transfer its problematic assets, with a gross accounting value of €30 billion, as well as 100% of Popular’s real estate management business Aliseda. The assets will then no longer be consolidated on Santander and Popular’s balance sheets.
Popular has finalized the sale of 51% of its real estate business to the asset manager Blackstone, effectively ceding control of the portfolio to the American asset manager. The sale will also allow both Banco Popular, presided over by its chairman, Rodrigo Echenique, and Banco Santander to de-consolidate the assets from their balance sheets, positively affecting the banks’ capital ratios. This is the biggest sale of a real estate portfolio in Spain’s history.
Santander estimates that the removal of the problematic assets from its balance sheet will result in an improvement of 12 basis points in its fully loaded CET1 capital ratio (including all Basel III regulatory requirements).
The deal was announced shortly after the European Commission, which found no potentially negative effects on competition resulting from the sale, gave its definitive green light to the purchase of Popular by Santander. The transaction includes Popular’s portfolio of foreclosed properties, questionable loans also tied to the real estate sector “and other real estate assets related to Banco Popular and its subsidiaries (including deferred tax assets), registered at certain specific dates (March 31 or April 30, 2017),” as Santander explained to the Spanish National Securities Market Commission (CNMV) as a material fact.
Transfer of assets
The agreement with Blackstone will entail the creation of a new company to which Popular will transfer assets with a gross accounting value of about 30 billion euros, as well as 100% of the Aliseda real estate management business, of which Popular, which had previously owned 49%, announced in July the buyback of the remaining 51% held by the funds Värde and Kennedy Wilson.
With the sale to Blackstone, the buyback will have no effect on Popular’s capital ratios. The buyback of 51% of Aliseda would have otherwise entailed a capital consumption of more than €300 million (leading to a reduction of 5 basis points in its capital adequacy ratio).
The valuation attributed to assets in Spain (real estate, credits and tax assets, not including Aliseda) amounts to about 10 billion euros. Considering this valuation, which is subject to changes depending on the volume of assets remaining at the closing date and the integration of Aliseda, the value of Blackstone’s controlling stake is estimated at approximately 5.1 billion euros.
According to the bank, this valuation is “in line” with the actual value of the assets, including provisions and adjustments made to Popular’s balance sheet after their purchase, so that “it does not generate a material capital gain or loss.”
The sale comes after a competitive selection process in which three international companies participated. Of the three, Blackstone was chosen for “presenting the best offer” in economic terms and in terms of its strategic plan, as explained by the bank.
Following the finalization of the deal, which is scheduled for the first quarter of next year, Blackstone will assume the management of the assets, which will have been incorporated into a new company, of which Popular will control 49%.
Reducing exposure to real estate
Rodrigo Echenique, president of Popular, said that “we are very satisfied with the agreement reached with Blackstone,” and that this operation will allow the bank “significantly reduce real estate exposure on its balance sheet and continue to consolidate its operations, focusing all our efforts on the bank’s commercial activities.”
Ever since Santander bought Popular for a nominal cost of one euro on June 7, after European authorities determined that the bank was on the brink of insolvency, one of Santander’s main priorities has been to unload Popular’s real estate assets.
In fact, in early July, Popular’s new management team, with Rodrigo Echenique at the helm, announced that it had initiated “a search for potential partners” for a portfolio amounting to €30 billion.
The search was supervised by Pedro Pablo Villasante, an independent director of the bank, who was responsible for ensuring “transparency and management of potential conflicts of interest,” while Santander was also advised by Morgan Stanley.
As pointed out by Popular, the criteria for choosing partners took into account three main aspects: “price, experience in this type of operation and their capacity to manage and execute the deal.”
Original Story: Expansión – J. Díaz
Photo: J.M. Cadenas – Expansión
Translation: Richard Turner
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Source:: AURA Real Estate Experts