National Australia values CYBG unit at up to $4.3 billion

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National Australia Bank Ltd. set an initial public offering price range for its CYBG Plc unit that values its U.K. division at as much as GBP2.07 billion ($4.3 billion) and advances its plan to exit the market.

The shares will be offered at 175 pence to 235 pence each, giving the division a value of at least 1.54 billion pounds, the Melbourne-based lender said in a statement to the stock exchange. The IPO will conclude National Australia’s exit from the U.K. and follow the sale of 75 percent of the unit to shareholders.

The spinoff will allow Chief Executive Officer Andrew Thorburn to move forward with his plan to boost Australia and New Zealand mortgages and corporate loans after years of struggles in the U.K. The domestic focus will boost the lender’s return on equity, that now lags its main competitors, Thorburn said last month.

“The U.K. unit pricing is broadly in line with market expectations,” Brian Johnson, a Sydney-based analyst at CLSA Ltd. said in a telephone interview. “In a bad market, it’s only reasonable to expect a pricing in the lower end of the range. If markets improve, then the higher end is possible.”

National Australia shares were 1.15 percent lower at A$26.70 at 3:27 p.m. in Sydney compared with a 0.8 percent decline for the benchmark S&P/ASX200 index.

The planned price range values CYBG at 0.56 times the net value of its assets to 0.76 times book value, National Australia said. The final price will be set Feb. 2 after a book-build, the bank said. CYBG’s senior management will start investor meeting Monday, National Australia said.

Accounting Loss

The proposed valuation compares with 0.75 times book value average for U.K. lenders with a market capitalization of at least 2 billion pounds, according to data compiled by Bloomberg. Barclays PLC is trading at 0.6 times the net value of its assets while Lloyds Banking Group Plc is priced at 1.1 times book, the data show.

National Australia said Dec. 8 it expects a “significant ” accounting loss from the spinoff and IPO. If the separation is managed at book value, the accounting loss would be A$1.71 billion ($1.18 billion), the bank said. That amount would rise to A$3.19 billion at 0.75 times the carrying value and A$4.67 billion at half the book value.

The lender said its main financial metrics will improve after the exit. Return on equity, a measure of how efficiently it uses shareholder funds, for the year ended Sept. 30 would have risen to 14.6 percent from the reported 12 percent, the bank said. Its cost-to-income ratio would have shrunk to 41.1 percent from 50.8 percent, it said.

The bank said it may elect not to proceed with the stock offering or only proceed with a partial IPO, in which case it will retain a shareholding in CYBG.