PE firms may snap up RBS’s $1.6Bn Spanish properties

Royal Bank of Scotland has hired Morgan Stanley to advise it on a potential sale of its Spanish assets, believed to be in the region of $1 billion pounds ($1.6 billion). RBS previously attracted private equity interest in its British portfolio – with Blackstone interested, as well as Lone Star and Goldman Sachs – though RBS had not at the time decided whether to sell. RBS has a 5-year plan to clear 250 billion pounds ($397 billion) of non-core assets.

(Reuters) – Royal Bank of Scotland is considering selling a 1 billion pound ($1.6 billion) Spanish property loan portfolio after hiring Morgan Stanley to advise on its options, an industry source said on Monday.

The Spanish commercial property loans add to a 3 billion pound portfolio of British real estate loans also on the block. Private equity firms and specialised investors looking to pick up the assets at a discount would be the likely buyers.

Part-nationalised RBS is attempting to shrink its “non-core” division and has said it may sell assets.

There were 44 billion pounds of real estate assets in its non-core division at the end of June, down from 63 billion at the end of 2008. At the end of last year 42 percent of the non-core portfolio assets were in Britain, and a quarter were in Continental Europe.

At least three potential bidders — Goldman Sachs, distressed debt fund Lone Star and private equity group Blackstone — were said to be eyeing the 3 billion pound British portfolio in early October, although RBS said at the time it had not decided whether to sell or not.

The Spanish portfolio is mainly made up of debt secured on commercial real estate. RBS was a big lender to Spanish developers in the run-up to the financial crisis, and has ended up as a stakeholder in property company Inmobiliaria Colonial after a debt-for-equity swap.

The real estate sales are part of RBS’s 5-year plan to clear 250 billion pounds of non-core assets off its balance sheet, as it capitalises on improving loan prices to sell at a small discount.

RBS last week sold 250 million euros worth of European mezzanine debt, a riskier type of loan ranking further down the capital structure and typically used to back leveraged buyouts. That portfolio went to about 25 different buyers, according to one distressed debt fund manager.

“They sold every bit of it and got some good bids,” the person said. “UK banks are taking the pain for the first time by selling assets. Secondary (loan) prices have improved dramatically, but there are still opportunities for distressed buyers.”

The bank also disposed of another big chunk of its leveraged loan exposure in August, when it sold a 1.4 billion euro portfolio of senior loans to Intermediate Capital Group.

RBS and British peers will accelerate the sale of distressed assets or portfolios of loans, restructuring experts said at a Reuters Summit earlier this month. (Reporting by Sarah White and Steve Slater, Editing by Douwe Miedema and David Cowell) ($1 = 0.6295 pound)