NAB forced to wait after late inquiry delays Clydesdale float

A rating agency sought financial information relating to NAB’s assessment of Clydesdale’s deposit rating.

National Australia Bank

National Australia Bank has been forced to delay the float of British subsidiary Clydesdale after a last-minute intervention by a credit rating agency, adding a fresh bump in the road for the group’s drawn-out exit from Britain.

After NAB this week narrowed the price range for the Clydesdale float to between £1.75 and £1.85 a share, the bank yesterday pushed back the final pricing by 24 hours until today.

NAB said it decided to delay the initial public offering because of the “proximity” with a request from a rating agency for financial information relating to its assessment of Clydesdale’s deposit rating.

But it assured investors the float was “expected to proceed” and the deal was “multiple times covered” at £1.80, signalling the group would reap £396m from the raising, well down on prior hopes after weak market conditions and heightened volatility took their toll.

At that price, NAB would lock in a hefty multibillion-dollar accounting loss, but the group’s cash earnings — which pay dividends — and its capital position would be unaffected.

NAB would trade ex-Clydesdale as of today after last week winning approval to demerge 75 per cent to shareholders, who would receive one security in the British “challenger” bank for every four NAB shares they own.

Clydesdale was also expected to trade on the London Stock Exchange today and on the ASX tomorrow.

The delay was the latest hurdle for NAB in the quest to offload Clydesdale, the Glasgow-based junior lender acquired in 1987. It has been a perennial problem-child for shareholders.

Along with having to shrink the float price range from initial hopes of up to £2.35 a share, NAB had received criticism from governance experts around the structure of the Clydesdale sale and fury from shareholders at the billions of dollars in losses.

Explaining the latest hiccup, NAB said that while Clydesdale was expected to have a senior overall investment grade credit rating, its short- and/or long-term deposit rating could be downgraded or placed on credit watch with negative implications.

The deposit rating was related to various secured funding programs to write mortgages, making up 13 per cent of the bank’s total funding.

A downgrade would force the bank to take “mitigating actions” but no further detail was provided.

NAB claimed a downgrade would not have “any material impact on its ability to raise funding, the overall cost of funding, or the financial outlook”. In addition, it was not considered “material to the financial position and outlook” of Clydesdale.

While pricing the IPO near the bottom of the range had reduced the size of the raising for NAB, it had been mostly backed by shareholders to free up NAB to focus on its core and more profitable Australia and New Zealand operations.

New investors have also expressed interest at the opportunity to buy Clydesdale at a discount to its book value.

In a note to clients yesterday, CLSA analyst Brian Johnson said buying Clydesdale below book value was a rare opportunity to buy a “cheap” financial stock, compared with Australia’s big four banks that are “over-earning, over-distributing and over-bought”.

He added Clydesdale was indemnified for 90 per cent of future British miss-selling provisions, had an improved management team and was well capitalised.

Clydesdale and other poor investments had resulted in NAB’s earnings per share growing just 2 per cent from 2000 to 2014, compared with 174 per cent for its big four peers, according to CLSA.