Fitch: HSH Nordbank privatisation plans ambitious

Following the EU Commission approval of a 2013 government intervention to rescue German Landesbank HSH Nordbank, ratings agency Fitch has warned that the planned timeline to privatise the lender is ambitious.

The German federal governments of Hamburg and Schleswig Holstein intervened in June 2013 with a €3bn rescue package to re-increase the guarantee ceiling of the German lender, which struggles with high levels of non-performing loans.

As part of the agreement, HSH would be split into a holding company, taking over most of the guarantee fee payment obligations, and an operating subsidiary to run the banks current operations.

Moreover, the bank can sell at market value up to €6.2bn of bad assets, predominantly held in shipping debt, to its owners, the German federal authorities of Schleswig Holstein and Hamburg, and another €2bn to the market.

Finally, German authorities agreed to sell the operating subsidiary. However, according to Fitch, the timeline for the planned sale will be challenging.

“The conclusion of the state-aid case removes uncertainty for creditors for now as there is no requirement for further restructuring or to bail-in creditors before the bank’s privatisation. But HSH has little time to demonstrate the viability of its business model to potential buyers, which include other Landesbanken as well as private sector investors. It will only be able to reflect progress up to its end-2017 accounts. The short deadline is particularly challenging because a key business segment for the bank is shipping, a sector Fitch has on negative outlook” the rating agency stressed.

Fitch also highlights changes to the preliminary agreement proposed by the Commission, which would result in a €260m one-off payment by the operating subsidiary to the holding company. “This will slightly lower capital expectations at HSH as the amount would otherwise have been available to boost common equity Tier 1 capital” Fitch stresses.

The rating agency is also cautious of the prospects for selling the subsidiary to the private sector: “HSH’s ‘BBB-‘ Long-Term IDR is support driven and reflects our view that if privatisation does not take place, the wind-down would be orderly under the current ownership. The Negative Outlook reflects our expectation that institutional support from HSH’s current owners would no longer be forthcoming if HSH is privatised, and that any new private owners are unlikely to have the ability and propensity to provide any necessary support at a ‘BBB-‘ level.”

Consequently, it suggests a sale within the German public sector as a potential solution. However, this would raise the question of state aid again.

The report concludes by warning that if privatisation were to fail, the bank would have to cease new business activities and be wound down.

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