ABB selling Structured Finance to GE Commercial Finance for $2.3 billion

By Control Engineering Staff September 4, 2002

Zurich, Switzerland— To decrease existing debt, ABB announced Sept. 4 that it’s selling most of its Structured Finance business to GE Commercial Finance for about $2.3 billion in cash, including equity and debt. ABB’s divestment of Structured Finance is subject to customary regulatory approvals.

Structured Finance, part of ABB’s Financial Services division, employs 500 people in 11 countries.

“The sale of Structured Finance is an important step in our ongoing program to strengthen the balance sheet, and allows us to cut net debt by $2.3 billion,” says Jörgen Centerman, ABB’s president and ceo. “The divestment of this activity is fully in line with our strategy to focus on power and automation technologies for industry and utility customers.”

Mr. Centerman reaffirmed ABB’s targets for 2002 of an EBIT margin of 4-5% and flat revenues. “With the sale of Structured Finance, we are confident that we will reach our target of reducing net debt by at least $1.5 billion this year from $4.1 billion at the end of 2001,” says Peter Voser, ABB’s cfo. At the end of 2002’s first half, ABB’s net debt had increased to $5.2 billion. Mr. Voser adds that, “The additional net debt reduction needed to meet our targets this year will be achieved through stronger net cash from operations in the second half of 2002 and other asset sales, including real estate.”

ABB said it will use the cash from the Structured Finance sale to repay scheduled debt maturing in 4Q02, including bank facility, commercial paper and bonds totaling about $1.2 billion. The remainder of the cash will be used to repay other debt maturing mainly in 2003.

The Structured Finance portfolio being divested includes global infrastructure financing, equipment leasing and financing businesses. ABB will retain some $0.9 billion in leasing assets related to its core businesses, representing about 15% percent of Structured Finance’s assets. ABB will retain its 75-employee Financial Advisory unit, which mainly serves ABB’s industrial divisions with advice on arranging financing for customer projects.

Under the sales agreement, GE Commercial Finance will:

  • acquire total assets of about $3.8 billion, including the $3.4-billion loan and lease portfolio;

  • pay about $400 million for Structured Finance’s equity, which represents a discount of 2% on the underlying book value of the loan and leasing receivables portfolio;

  • pay ABB $1.9 billion to cover Structured Finance’s net debt, which consists of $2.1 billion in debt minus $200 million cash already on Structured Finance’s balance sheet; and

  • assume other liabilities of about $1.2 billion.

ABB adds that the 2% discount on the $3.4 billion loan and lease portfolio, the transaction costs related to the deal and provisions, correspond to a loss of around $125 million. This amount will be accounted for as discontinued operations, and will not affect EBIT.

Not included in the divestment are ABB Export Bank; ABB’s 35% equity stake in the Swedish Export Credit Corporation; and its aircraft leasing business. ABB is in negotiations to divest some or all of these businesses, which had a total asset value of about $0.9 billion at the end of June 2002.

Control Engineering Daily News Desk
Jim Montague, news editor