The big question mark hanging over the potential sale of Sydney’s Royal North Shore hospital is operational risk, which could narrow the field of bidders as Royal Bank of Scotland mulls offloading the public-private-partnership from its bad bank portfolio.
The highly leveraged nature of the asset, in which RBS holds a debt stake of about $1 billion and $300 million in equity and swaps, opens up the field to smaller PPP players.
Infrastructure-hungry industry and superannuation funds will no doubt be assembling teams to comb the asset. Goldman Sachs has been appointed to assess the sale and refinancing options.
It is understood that a sale is RBS’ preference, but a formal sales process would be unlikely to kick off until after Christmas.
Royal North Shore is best suited to specialist PPP investors and funds.
AMP and IFM have typically been most interested in the bidding and construction phases of PPPs, rather than the operational side of managing the day-to-day running of such an asset.
That said, IFM will no doubt look closely at RBS’ latest offering given its purchase of debt in the Victorian Comprehensive Cancer Council and Royal Adelaide Hospital PPPs.
Despite having little history of social PPP investing, Aussie Super would also likely look at it.
Only a handful of players are both specialists in social PPP deals and likely to buy in to an asset at the operational stage.
Such narrow criteria could see bids concentrated among the likes of listed UK houses InfraRed Capital Partners, the fund manager spun out of HSBC; and UK fund manager John Laing, which focuses on infrastructure and real estate.
New Zealand-based infrastructure investor Morrison & Co and Canadian pension fund manager CDPQ may also take a look.
RBS might ask the NSW government for a series of contract changes to make the asset more attractive. The NSW government is understood to have engaged Lazard for general advice on a potential sale.
RBS is understood to have bought the asset under its bad bank portfolio in 2007 - only to be hit by the global financial crisis months later and find itself with an ugly exposure.
In addition, RBS sold the rest of its PPP business in Australia two years ago and Royal North Shore is understood to be chewing up a fair chunk of management’s time.
RBS, which is about 81 per cent-owned by the UK government after nearly folding during the GFC, is embarking on a global asset sell-off as it focuses on its UK lending business.