Standard Chartered Bank has sold its Principal Finance Real Estate (PFRE) business in Asia to UK emerging markets investor Actis and is reported to be close to unloading its private equity business as well. The deals mark an end to the bank’s years-long struggle to free itself of its money losing principle finance endeavors.
The Actis transaction was confirmed in a 20 August release by the buyer. Standard Chartered also confirmed the transaction by email but declined to disclose the price. The UK bank￼’s private equity exit, to UK’s Intermediate Capital Group (ICG), was reported by Reuters and Bloomberg but has not been confirmed by any of the parties involved.
Transformer and Augusta
Standard Chartered decided in late 2016 to leave the principal finance business, through which the bank had been investing its own fund directly into real estate opportunities, after the money-losing unit had become a drag on earnings. As of 2017, the bank stopped breaking out principle finance results altogether in its financial disclosures. Bloomberg reports that the unit may have cost the bank $1 billion since CEO Bill Winters took over Standard Chartered in 2015.
The campaign to leave principal finance, dubbed a saga by Bloomberg, even earned code names. Standard Chartered’s efforts to sell its private equity unit was called ‘Augusta’, while the operation to dispose of its direct real estate investment unit and the assets was referred to as ‘Transformer’.
The deal with Actis has been advancing to a close for some time, with Reuters having reported discussions of a potential disposal in 2017. A provisional agreement was reached in March 2018 at a time when the private equity unit was still being shopped around. Reuters quoted a senior official at the time as saying that Actis was raising funds to complete the deal, with the Business Standard identifying the vehicle as the Actis Asia Real Estate Fund-1 and quoting sources as saying that marketing began in the spring.
Deal for Fund Management Business in the Works
According to Reuters, Standard Chartered remains in discussions to sell its private equity business to ICG, a London-based and London-listed alternative asset manager with almost $38 billion under management.
The deal in the works involves a number of players and would still require additional steps before reaching a final agreement. According to a Bloomberg report citing unnamed sources, the potential transaction would involve ICG acquiring $1 billion in assets.
As part of the reported deal, Nainesh Jaisingh, Standard Chartered’s current Global Head of Principal Finance, would form a new company to manage the $1 billion in assets from Standard Chartered’s private equity real estate business, plus about $2.1 billion of third-party assets. ICG would then invest an additional $400 million in the new firm for the purpose of making new investments, as the next stage company grew to assets under management totalling about $3.6 billion.
Actis Expands into Asia
Actis is a London-based private investment company focused on Africa but with holdings worldwide. Founded in 2004, it has $13 billion under management and $3 billion committed to the Asia region via energy and private equity investments. According to its website, it currently has no real estate investments in Asia.
The portfolio acquired from Standard Chartered has seven investments, including deals in China, India and South Korea, and according to Reuters the assets are worth about $700 million. Little has been disclosed about what property could be included in the transaction, although in 2016 the Standard Chartered PFRE unit did make a $73 million investment in Chayora, a developer and operator of data centres in Tianjin and Hangzhou, China. That holding was still on the books of the bank at the end of 2017. The portfolio may also include a stake in a Longfor commercial project in Chongqing, which Standard Chartered acquired in 2014.
Team Building Exercise
Along with the assets, Actis will get a 20-person team from Standard Chartered, including Brian Chinappi, as Asia Head, Thomas Liu, Head of Greater China and North Asia, and Ashish Singh, Head of India. The company will also gain two regional offices, in Shanghai and Seoul, as a result of the acquisition. The company already has Asian offices in Beijing, Hong Kong, Mumbai and Delhi.
“We have sought out a world class team and a portfolio that fits seamlessly into our culture and complements our own approach and experience of successfully operating in the most dynamic growth markets in the world,” said David Morley, partner and head of Real Estate at Actis.