Cantillon: Clydesdale IPO could show way for AIB

The starting gun has been fired on the proposed IPO of the UK’s Clydesdale Bank, or CYBG plc, as it is being termed by its Australian parent company.

National Australia Bank (NAB) set the price range yesterday at between 175 and 235 pence, which would give the David Duffy-led bank a market capitalisation of between £1.54 billion and £2.07 billion.

Under the demerger proposal, NAB plans to offer 25 per cent of CYBG’s shares to institutional investors, with the balance distributed among its own shareholders.

Minister for Finance Michael Noonan and his team of advisers, and AIB's board of directors, will no doubt be keeping a close eye on Clydesdale's journey towards an IPO.

The two might be chalk and cheese in terms of scale and their respective market shares – and the Irish economy is hot with investors right now – but CYBG could be a bellwether for the Irish bank’s hopes of a successful IPO of its own later this year, particularly at a time when market conditions continue to look a bit uncertain.

The pricing announced by NAB implies a multiple of book value of CYBG's full-year 2015 net tangible assets of 0.56 to 0.76 times. This is thought to be below the number that AIB would hope to attract, especially as the average for the European bank sector would be about one times.

Safe to say that CYBG has been priced to sell by NAB, a nod perhaps to the current volatility in stock markets. A multiple of 0.5 times would crystallise a loss of A$4.7 billion (€3 billion) for the Australian bank while 0.75 times would involve a hit of A$3.2 billion. Had it reached the magic one times multiple, the loss would have reduced to A$1.7 billion.

With global markets currently in bear territory it remains to see if CYBG’s IPO will last the pace until February 2nd, when the shares are due to list in London. It will require a major charm offensive by Duffy, in the coming weeks to get this one across the line.