General Electric Co. is starting a process to sell its US$5
billion Australia commercial-lending operation, according to people
familiar with the situation, dismantling another key piece of GE
Capital in Asia.
The process is in the early stages and comes as the U.S.
conglomerate is also preparing its commercial-lending operations in
Japan for a sale. In March, GE struck a deal to sell its Australia
and New Zealand consumer-lending business to a consortium including
KKR & Co. for an enterprise value of US$6.3 billion, including
debt.
The string of Asia asset sales, which will fetch GE billions of
dollars, follows a pledge by Chief Executive Jeff Immelt to refocus
the U.S. conglomerate toward industrial businesses ranging from
aircraft engines to wind turbines. Mr. Immelt wants to sell or spin
off the bulk of GE's US$500 billion in global financial assets,
aiming to use the proceeds to return US$50 billion to
shareholders.
GE hopes that investors will give the company a richer valuation
if it goes back to its industrial roots and delivers steadier
earnings without the volatility generated by GE Capital's
operations. During the financial crisis, GE required a cash
infusion from the U.S. Treasury to keep it afloat. GE was
designated for sharper scrutiny as a systemically important nonbank
financial company.
GE's Australia commercial-lending operations have an asset value
of approximately US$5 billion and it is working with its adviser to
prepare the business for a sale to potential bidders, according to
people familiar with the situation. Private-equity investors are
the most likely bidders for the operations and the way an ultimate
bid is financed will play a key role in the final amount of equity
bidders would have to pay for the business, they said.
The business specializes in loans to midsize companies, defined
as those with a revenue of 10 million Australian dollars (US$7.9
million) to A$250 million. It also provides equipment leasing. Its
customers include camping trailer manufacturer Jayco, winemaker
Hardys, and Hastings Deering, a distributor of Caterpillar
earthmoving equipment.
Analysts said while local lenders could also take a look at the
business, it is most likely to appeal to cashed-up private-equity
firms who aren't subject to the same increasing capital
requirements as local banks.
Australia's banks have been required by regulators to hold
increasing amounts of capital against their lending since the
global financial crisis. Now with Australia's housing market
running at a red-hot pace, spurred on by low official interest
rates, the Australian Prudential Regulation Authority has indicated
it might further increase the amount of capital banks must hold
against mortgages and crack down on risky lending to property
investors in a bid to cushion the sector against shocks.
"I think at this stage there is no appetite to buy something big
unless the capital rules have become clearer," Bell Potter analyst
T.S. Lim said. "So it probably will fall to private equity."
A bid by one of the country's so-called "big four" major
banks—National Australia Bank Ltd., Westpac Banking
Corp., Commonwealth Bank of Australia and ANZ Banking
Group—could also run afoul of the antitrust regulator
given they already dominate lending in the space, he said.
Analysts said Australia's biggest investment bank Macquarie
Group Ltd. is likely to take a look at the assets, although its
existing commercial-lending business is focused more on the bigger
end of town and it has been concentrating on aggressively expanding
in mortgages.
GE plans to keep its aircraft-financing business separate and
consolidate those operations globally, according to a person
familiar with the situation.
In addition to the capital business, GE has substantial other
operations in Australia and New Zealand ranging from equipment for
liquefied-natural-gas projects to mining gear and wind-farm
turbines.
Running in parallel to the Australia commercial lending sale
process is a similar sale process in Japan. Bidders for the US$5
billion of assets at GE's Japanese commercial lending and leasing
operation are expected to include Japan's largest financial
institutions, such as Mitsubishi UFJ Financial Group Inc.'s leasing
unit and Sumitomo Mitsui Financial Group Inc., according to people
familiar with the situation.
--Ted Mann contributed to this article.
Write to Rick Carew at rick.carew@wsj.com and Rebecca Thurlow at
rebecca.thurlow@wsj.com
Access Investor Kit for General Electric Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US3696041033
Access Investor Kit for KKR & Co. LP
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US48248M1027
Subscribe to WSJ: http://online.wsj.com?mod=djnwires