Royal Bank of Scotland Group Plc (RBS.L, RBS) Friday said it plans to launch an Initial Public Offering, or IPO, of its fully-owned subsidiary Direct Line Insurance Group Plc in an all-secondary offering by the lender. As a condition to receiving state aid,RBS, in 2009, had committed to the European Commission to undertake certain measures, including the disposal of its interest in Direct Line Group. The stock is gaining over 4 percent in early morning trade.
To comply with this requirement, RBS has to cede control of Direct Line Group by the end of 2013 and must have divested its entire interest by the end of 2014.
Financial details of the IPO were not divulged, though reports said the offering is estimated to fetch around 3 billion pounds.
Direct Line said separately that shares to be sold by RBS Group would represent 25 percent or more of the issued share capital of the company. No new Direct Line Group shares will be issued in the offering. It will be made available to institutional investors in qualifying geographies and to intermediaries in the U.K. who will facilitate the participation of their retail investor clients.
The insurer intends to apply for admission of its ordinary shares to the premium listing segment of the Official List of the UK Financial Services Authority and to trading on the main market for listed securities of the London Stock Exchange Plc.
Direct Line was launched over 25 years ago as a pioneer of direct motor insurance. It is a retail general insurer and has leading market positions in the U.K. The firm has a strong presence in the direct motor channel in Italy and Germany, apart from a focused position in UK SME commercial insurance.
The firm operates under brands such as Direct Line and Churchill. It is comprised of five primary segments: motor, home, rescue and other personal lines, commercial and international. The company has in-force personal motor policies of 4.2 million and in-force home policies of 4.3 million.
Bruce Van Saun, Group Finance Director of RBS, said, "We are pleased to confirm today our intention to commence an IPO of Direct Line Group...We believe it has a strong future as a standalone insurance group continuing to serve its customers well while delivering attractive returns to investors."
Direct Line targets a 15 percent return on tangible equity from ongoing operations and a 98 percent combined operating ratio for 2013, along with 100 million pounds of gross annual cost savings in 2014.
The firm plans to pay full final dividend for 2012 in the second quarter of 2013 with the final dividend representing two-thirds of pro-forma full year dividend. Pro-forma full year dividend pay-out ratio for 2012 is expected to be between 50 percent and 60 percent of any consolidated post-tax profit from the group's ongoing business.
RBS.L is gaining 4.3 percent in early morning trade at 285.60 pence.
by RTT Staff Writer
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