HSBC May Face Further Delay in Turkish Unit Sale
As per a Bloomberg report, HSBC Holdings plc HSBC will likely face a delay in selling its Turkish business to the Netherlands-based ING Groep NV ING. Notably, ING was expected to announce its acquisition of the concerned unit in the prior month. However, political chaos in Turkey, along with the recent market turmoil, resulted in the delay.
HSBC had reportedly struck a deal with ING in Jul 2015 to sell the unit for $700–$750 million. However, of late, several concerns have made ING cautious on the agreement.
One of the major factors that are making ING apprehensive regarding the acquisition is the dilapidated condition of Turkish economy. Notably, the Turkish lira has depreciated 21% year to date against the dollar, while the banking stocks have declined 40% over the same time frame. Additionally, uncertainty over matters related to Demirbank, which was seized by the government in 2001 and then sold to HSBC at a massive discount, has led ING to reconsider its decision.
However, HSBC is in no hurry to sell its Turkish business, as the London-based lender received higher-than-expected value for its Brazilian unit, which was sold to Banco Bradesco S.A. BBD for a hefty $5.2 billion. According to a source, “The sale of the Brazilian unit at a good price reduced the urgent pressure for the sale of the Turkish unit”.
Notably, since Jun 2015, HSBC had been contemplating the sale of its Brazilian and Turkish operations in a bid to cut costs and ramp up profitability. The planned disposals are expected to lower its workforce by around 25,000 employees. Overall, the company intends to slash approximately 50,000 jobs over the next two years, which is expected to result in annual savings of $5 billion by 2017.
The Road Ahead
According to people familiar with the matter, HSBC and ING might take an additional one to two months to reach an agreement. On the contrary, three people disclosed that the deal may get cancelled altogether.
Based on sources, HSBC is in talks with other potential buyers for its loss-making unit. Notably, Bahrain's Arab Banking Corp, France-based BNP Paribas and Qatar National Bank, which had previously shown interest in the unit, continue to be strong contenders. However, others emphasize ING’s position as the sole contender for the unit.
Bottom Line
While the delay may not be an issue for HSBC at present, continued postponement or any unfruitful decision can lead to failure of its targeted restructuring plan. Moreover, if ING backs out, HSBC will end up spending further time and efforts to reach an agreement with the above-mentioned potential buyers.
In addition, there are chances that the company might fail to secure a favorable value for the distressed unit owing to increasing complexities surrounding the same.
HSBC currently has a Zacks Rank #3 (Hold). Mitsubishi UFJ Financial Group, Inc. MTU is a better-ranked foreign bank, carrying a Zacks Rank #2 (Buy).
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