27th May 2014 11:59
LONDON (Alliance News) - Lloyds Banking Group PLC Tuesday said it intends to go ahead with an initial public offering of TSB Banking Group PLC on the London Stock Exchange in June.
In a statement, Lloyds said it will offer about a quarter of the shares in TSB to both institutional and retail investors. Moving to sweeten the deal for retail investors, Lloyds said they will be offered one free share for every 20 shares acquired up to GBP2,000 and held for one year after the IPO.
Lloyds is selling the 631 branches as part of the agreement for it to receive state aid in the midst of the financial crisis. As part of the divestment, which was ordered by the European Commission, Lloyds is required to sell its remaining stake in TSB before the end of 2015. The FTSE 100 bank has agreed that it won't begin to sell its remaining shares for 90 days after the initial stake is admitted to trading on the main market of the London Stock Exchange.
According to a person familiar with the matter, the shares will be sold at a range of 0.8 to 1.1 times TSB's GBP1.5 billion book value. However, investors are expected to look for a discount to book value amidst concerns that the IPO market is cooling, after fashion retailer Fat Face last week pulled its plans to float and over 50s insurance and holidays firm Saga PLC ended up pricing its own IPO at the bottom of its original range.
"The decision to proceed with an initial public offering of TSB is an important further step for the group as we act to meet our commitments to the European Commission. TSB has a national network of branches, a strong balance sheet and significant economic protection against legacy issues. It is already operating on the UK high street and is proving to be a strong and effective challenger, further enhancing competition in the UK banking sector," António Horta-Osório, Lloyds Chief Executive, said in a statement.
TSB has 4.5 million retail customers and a national distribution model through its branches, making it the seventh largest retail banking group in the UK by branch network. Its balance sheet is made up of UK retail mortgages. Moreover, it is protected by a guarantee from Lloyds in respect of the mis-selling scandals that have cost the banking sector billions of pounds in fines and associated costs since the crisis.
The new entrant to the banking sector is looking to boost its market share in personal current accounts and to grow its assets by re-entering the intermediary mortgage distribution channel in early 2015. It also wants to use digital technology to reduce costs of servicing customers and to ensure strong customer relationships.
According to Lloyds, TSB's board wants to grow its franchise balance sheet by 40% to 50% over the next five years. Based on its current market expectations for interest rates, regulation and competition, TSB expects to move towards double-digit return on equity over the same period, while continuing to grow.
However, TSB's current emphasis on growth means that it does not expect to pay a dividend until 2018, in respect of the 2017 financial year.
"As we prepare for life as an independent, listed entity we are aiming to deliver strong, steady and sustainable growth, over the long-term. Our straightforward and simple approach to banking is designed to deliver the kind of bank people tell us they want: every penny our customers deposit with us is used to support mortgages and loans for other TSB customers," TSB Chief Executive Paul Pester said in a statement.
The underwriters for the IPO are Citigroup , JP Morgan Cazenove, UBS Ltd, Investec Bank PLC, Numis Securities and RBC Europe Ltd, while Rothschild is advising TSB on the deal.
Lloyds shares were early Tuesday quoted at 77.05 pence, up 1.4%.
By Samuel Agini; [email protected]; @samuelagini
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