Behind NAB’s Clydesdale delay

The logo of Clydesdale Bank hangs outside of a branch in Edinburgh, Scotland, on Tuesday, Oct. 11, 2011. Sun Capital, backed by Hugh Osmond, made a 2 billion-pound ($3.1 billion) offer for Clydesdale and Yorkshire bank networks. Photograph: Mike Wilkinson/Bloomberg

It was portrayed as a minor hiccup. But a rating agency’s last-minute request for more financial information on Clydesdale’s initial public offer must have set nerves jangling again in National Australia Bank’s futuristic headquarters in Melbourne’s Docklands.

As bankers know too well, time is money and delays to deals can be costly.

So when the unnamed ratings agency demanded more information on Clydesdale’s deposit rate — a move that could result in a downgrade to one of the bank’s credit ratings — the IPO deal team swung into action.

Institutional investors were asked to recommit their bids by 7pm Sydney time.

While this is standard practice in such an event, sources pointed out it was also aimed at fending off any opportunists hoping to capitalise on the timetable upset and push for a lower price.

As first revealed by DataRoom on Monday, NAB revised the valuation range to £1.75 to £1.85 from its initial guidance of £1.75 to £2.35 after tumultuous market conditions weighed on investor appetite.

It has stressed the deal is covered multiple times at £1.80 — equivalent to $3.66 a share — and while Clydesdale is expected to debut on the London Stock Exchange at that price, the unexpected incursion from the ratings agency threatened that valuation.

As one investor pointed out, the market has now been given another day to mull the merits of the deal but he argued it was far better the query emerged prior to the listing rather than later, when such news may have precipitated a steep fall in the share price.

NAB has struggled to exit its British investments, and now the end is in sight, some analysts predict the upside for the Australian lender will be limited.

A note from Credit Suisse indicated the loss of earnings from Clydesdale will be partially offset by a small re-rate in NAB’s price-earnings multiple, which is predicted to rise from 12.2 times to just 12.3 times.

Clydesdale’s demerger will not produce any surplus capital — another limiting factor to any upside in NAB’s valuation.

According to Credit Suisse, the £1.80 IPO price implies a book value of slightly above 0.5 times — far lower than many had anticipated.

Elsewhere close to half a dozen institutions snapped up Mercury Capital’s 4.3 per cent stake in Estia Health in a sell-down handled by Macquarie. It is understood the shares were sold at $6.65, a 3.2 per cent discount to the last close.