Deals and IPOs

RBS Raises Record $7 Billion to Fund ABN Amro Deal


Royal Bank of Scotland has effectively completed the financing for its part of the ABN Amro takeover, raising 5 billion euros ($7 billion) in the biggest fundraising of its type on record.

The British bank said on Thursday it raised the money from an issue of preferred securities in euros, sterling, and U.S. and Canadian dollars, tapping investors around the world.

It represented the biggest tier 1 capital issue on record, according to research firm Dealogic, and provided further evidence that credit markets are thawing after a difficult few months.

"That they were able to do such a large tier 1 issue is very good news," said Joe Biernat, head of credit research at European Credit Management.

RBS is due to pay 15 billion to 16 billion euros for its share of ABN Amro if a consortium that also includes Spain's Santander and Belgian-Dutch Fortis wins the long-running takeover battle for the Dutch bank.

The consortium offer is worth just over 70 billion euros -- almost 20% ahead of a rival offer from Britain's Barclays   -- making it almost certain to be preferred by ABN shareholders. The consortium's offer closes on Oct. 5.

RBS last week raised $1.45 billion from a U.S. retail preference share issue, which has since increased in size to $1.6 billion, and Wednesday's 5 billion euro pricing means the bank has surpassed its target of raising 6 billion euros in non-equity tier 1 capital for part of its bid.

The Tier 1 offer, led by Merrill Lynch and RBS, was eight times oversubscribed, signaling investor demand is recovering after the credit market turmoil earlier this summer.

The Edinburgh-based lender is also issuing shares to ABN investors as part of the deal, currently amounting to about 4.2 billion euros.

The remaining 5 billion euros will be raised in senior debt, about half of which has been raised from U.S. and Japanese bond issues earlier this month, while the rest is expected to have been raised in private placements.

A widening of spreads in credit markets means RBS, Fortis and Santander face higher costs to finance their debt than they had planned, but when the credit squeeze was at its worst last month there had been fears it could scupper the deal.

Dealers said good demand allowed RBS to cut the spreads on offer for the latest securities, and the extra annual cost of servicing the preference shares is estimated at between 40 million and 50 million euros.

Fortis launched a 13 billion euro rights issue on Friday as part of its 24 billion euro share of the deal.

Santander's share is about 19.5 billion euros, and there are few concerns that it will raise its cash from selling property assets, issuing new shares and offering a convertible bond to retail customers.

The consortium has shaved some costs off the deal by taking an interest of 8% in ABN in the market at prices below the offer price.

ABN shares were unchanged at 36.93 euros, about 2% below the value of the consortium's offer, currently at 37.85 euros.