GE to Spark New Life Into Prague Exchange With Banking Unit IPO

  • Co. aims to complete sale of majority stake this quarter
  • J&T sees GE Money Bank valued at $1.4 billion to $1.9 billion

General Electric Co. plans to sell most of its Czech banking unit in an initial public offering that could reinvigorate the Prague equity market whose value has shrunk by 70 percent in the past seven years.

The U.S. company seeks to complete the offering of shares in GE Money Bank AS this quarter, the unit’s Chief Executive Officer Tomas Spurny said in a phone interview on Monday. The transaction may value the lender between 34 billion koruna ($1.4 billion) and 46 billion koruna, according to J&T Banka AS. Pricing in that range would make it the fourth-largest Czech traded company.

GE is divesting the unit as part of a year-old plan to sell most of its financial assets worldwide and focus on its industrial business. The unit’s listing would boost the Prague Stock Exchange, where delistings and stock plunges have reduced the total market capitalization to $25 billion from a peak of $86.7 billion in July 2008, data compiled by Bloomberg show.

“We expected them to sell the whole stake directly to a strategic investor, but either they haven’t been able to agree on such a deal or they believe they can get a better price in an IPO,” J&T analyst Milan Lavicka in Prague said by phone. “This is positive for the Czech stock market because it would add a sizable company that could be attractive for investors.”

Growth Market

The IPO would be the largest in the Czech Republic since a $2.5 billion offering by New World Resources in 2008. The latest addition to the Prague market was Kofola CeskoSlovensko AS, a soft drinks producer which raised an equivalent of $32 million on Dec. 1.

GE is tapping the Czech equity market at a time the country’s economy enjoys one of the fastest growth rates in Europe, driving credit growth and profits in one of the continent’s best-capitalized banking industries.

After it floats GE Money Bank, subject to market conditions and regulatory approvals, the U.S. company will keep a “significant” minority stake for 180 days or longer and will support the lender for at least two years, Spurny said. The Czech company will pay a 4.5 billion koruna dividend to GE before the IPO, or about 100 percent of last year’s net income, and plans to maintain a payout ratio of at least 70 percent in the future, according to the CEO.

Branch Network

GE Money Bank has a network of 229 branches, the fourth-largest in the country of 10.5 million, and had tangible equity of 27.3 billion koruna at the end of last year, the Czech unit said in a statement on Monday. The lender’s common equity tier 1 ratio, a measure of financial strength, stood at 17.7 percent on Dec. 31, while the return on average assets was 3.2 percent last year.

While it’s too early to estimate the price of the transaction, the U.S. company has opted for a public offering after receiving “very positive” feedback from potential institutional investors, the unit’s chief executive said. Citigroup Inc, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are the joint global coordinators and joint bookrunners to the offering, with Wood & Co. acting as joint-lead manager and listing agent, the lender said in the statement.

“The IPO has been evaluated as the most favorable option,” Spurny said. “As a local Czech bank, we will continue to be successful. Perhaps more successful by opening additional degrees of freedom for the bank to make tactical and strategic decisions as a standalone bank rather than a bank owned by a global entity.”

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