Getting early dibs, private equity giant Blackstone Group and San Francisco-based Wells Fargo signed agreements to acquire the majority of assets of GE Capital Real Estate, a unit of General Electric (GE), in a transaction value worth approximately US$ 23 billion. More financial assets are available for sale, as GE yearns to return to its industrial beginnings, focusing on wind turbines, jet engines and medical devices. In addition, GE is eager to get away from being lumped in with banks which are facing new regulatory laws. Under Dodd-Frank, the industrial conglomerate has been labeled a systematically important financial institution (SIFI). To assist in this complex and massive sales process, GE hired JPMorgan Chase & Co to be the lead on the financial asset disposition plan. Other bankers such as Goldman Sachs and Credit Suisse are assisting possible piecemeal sales of financial assets. Once the massive corporate restructure is final, GE capital should make up less than 10% of the company’s operating earnings – down from 42% in 2014.
GE Talks to Everyone, Even Sovereign Wealth Funds
Sovereign wealth funds could play a major role in acquiring some financial assets of GE, either directly or indirectly as a limited partner through a private equity fund. Sovereign investors were the white knights that bailed out banks such as UBS and Merrill Lynch during the subprime meltdown. According to GE Chief Financial Officer Jeff Bornstein, in a Bloomberg interview, the company had discussions with “a broad geographic spectrum” of suitors, including sovereign wealth funds, hedge funds and banks. GE has more than US$ 160 billion financial assets to sell. The financial advisors of GE have assisted in trying to find buyers for GE assets as well. As an investor group, sovereign wealth funds have over US$ 7 trillion in assets, eclipsing the Canadian pensions in assets. The large sovereign wealth funds, such as the Abu Dhabi Investment Authority, GIC Private Limited and Norway’s SWF have large balance sheets. Just this week, Norway’s sovereign wealth fund partnered with Prologis, through their joint venture, and bought a mega portfolio of U.S. industrial and logistical real estate for US$ 5.9 billion.
On the April 17th, 2015 GE First Quarter Earnings Call, Scott Davis, managing director and head of global industrials equity research at Barclays Capital, commented, “I was intrigued by a couple of comments that you made but Jeff Bornstein, the comment you made on incoming interest into the asset sales. Give us a sense of — I think the question really is, give us a sense of your availability to sell those assets quicker than you laid out in your timetable, meaning are the books out, do you have — if the sovereign showed up tomorrow could you hand them the keys and a few months later it is you can get the deal done? Or is there some gating factors that could limit the timing?”
US$ 74 Billion – U.S. Commercial Lending and Leasing Unit
First up for sale is GE’s US$ 74 billion U.S. commercial lending and leasing unit. The unit provides financing and leasing for companies such as supermarket outlets, vehicle dealerships and the like. Some interested buyers are, Mitsubishi UFJ Financial Group Inc., Apollo Global Management, Wells Fargo & Co. and, yes, Blackstone Group.
Apollo and Blackstone could give Wells Fargo a run for their money, as private equity firms are pressured to use committed capital for investments – good amount is backed by pensions and sovereign wealth funds through LP commitments. In addition, GE could sell the portfolio piecemeal to gain a higher valuation.
Since the beginning of the year, Abu Dhabi-based Mubadala Investment Company has been looking at owning the distressed Brazilian infrastructure company Invepar SA for quite some time. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Knowlton Development Corporation (KDC) has made its latest acquisition with the purchase of Aromair Fine Fragrance Company Inc., a U.S. subsidiary of Aromair Group that specializes in air care products, from London-based Strategic Value Partners. The terms of the transaction, which was completed on November 8, were not disclosed. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Norges Bank penned a letter to its Ministry of Finance recommending the removal of oil and gas stocks from the GPFG’s benchmark index. At the moment, oil and gas stocks make up roughly 6% of the wealth fund’s benchmark index, or just around 300 billion NOK. Norway’s wealth fund is a major holder of oil companies such as ExxonMobil, Chevron, BP, Total and Royal Dutch Shell. Oil and gas stocks were a major driver of positive equity returns in previous quarters.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
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