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Monday, 20 November 2017

US Secondary Equity Issue: RBS' US$3.7bn sale of Citizens

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Model Citizens

Selling equity under pressure is not an easy feat, especially when given a deadline for disposing of US$12bn of stock in an underperforming US regional bank still collecting itself after the 2008 financial crisis.

Yet that is the position in which RBS found itself with the requirement to dispose of Citizens. The US$3.5bn IPO in September 2014 was a start, but it was really the US$3.7bn follow-on in March that set the path for a complete exit in 2015, a year ahead of the European Commission’s deadline. In one trade RBS’s ownership dropped from 70.3% to 42%.

The stakes were high as the deal was the largest follow-on by a US bank since 2009, but it could not founder given the need to keep returning to market. The disposal was also a major step towards RBS being able to free itself of its unwelcome controlling shareholder – the UK government.

Active bookrunners Morgan Stanley, Goldman Sachs, JP Morgan and Citigroup (leading a wider 14-firm syndicate) substantially broadened the institutional ownership of Citizens, allocating 46% of the deal to new investors including fundamental, long-only accounts.

They canvassed more than 75 investors via one-on-one meetings, conference calls and group events. Ultimately, there were 217 institutional orders in a book that was twice covered.

Retail orders added another US$2bn of demand, helping to justify a 17% upsize. The price was struck at US$23.75, a 1% discount to where it was trading. Pricing was a premium to both the IPO price (US$21.50) and tangible book value, even with a 0.6% S&P 500 decline on the final day.

The deal was followed by a similar sale – this time marketed across one session rather than three – in July, raising US$2.8bn at US$26 per share, before the final sale as an overnight transaction priced at US$23.38 in October.

The price in October was disappointing, but the opportunity to accelerate its exit, at a level slightly below book value, was too good to pass up at a time when bank stock prices were softening and many European banks were looking to shore up their capital bases.

“We were happy to be spun off somewhat sooner than expected,” said Citizens’ chief financial officer Eric Aboaf. “It was a vote of confidence in us and our employees that there was such high demand for the offerings.”

For broadening the shareholder register, significantly cutting RBS’s shareholding and accelerating the journey to complete exit from an asset owned since 1988, RBS’ US$3.7bn follow-on sale of Citizens is IFR’s Secondary Equity Issue of the Year.

To see the digital version of the IFR Americas Review of the Year, please click here .

To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com .

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