Abu Dhabi, UAEMonday 17 June 2019

Japan's MUFG to buy aviation finance arm from Germany's DZ Bank

The deal is one of MUFG's biggest acquisitions since it was created in 2005

MUFG agreed to buy DZ Bank’s aviation finance division in one of its biggest acquisitions since it was created in 2005. REUTERS/Issei Kato
MUFG agreed to buy DZ Bank’s aviation finance division in one of its biggest acquisitions since it was created in 2005. REUTERS/Issei Kato

Japan's Mitsubishi UFJ Financial Group (MUFG) has agreed to buy the aviation financing business of Germany's DZ Bank as it expands further into the sector and becomes more international.

Under the deal, MUFG Bank and BOT Lease have agreed to take on the entire aviation finance portfolio of DZ Bank's DVB, which stood at 5.6 billion euros (Dh23.4bn) in June 2018, the banks said in a statement.

Reuters reported in November that MUFG had emerged as the leading bidder for the DVB aviation loans, although the initial expectation had been that the Japanese group might not take the entire business line of the German bank.

MUFG is buying the portfolio for a price slightly above face value of the 5.3bn euros in drawn loans, two people close to the matter said, but did not give the exact figure. The banks declined to comment on the purchase price.

Japan's big banks, flush with cash but saddled with a shrinking population and zero interest rates, have made a push in recent years into aircraft finance, lured by better returns over straight corporate loans.

People close to the matter said that the acquisition also includes an aviation finance management platform.

DZ Bank had put individual tranches of its troubled transport financing division DVB up for sale after failing to find a buyer for the business as a whole.

In 2015 DZ Bank had talks with MUFG but no deal materialised as the Japanese group did not want to take on the ship loans.

DVB is unusual in banking because it straddles both aviation and shipping, and both lending and leasing - a combination rarely found in one package.

In December, DVB sold a 1.4bn euro portfolio of loans to the land transport sector to German public sector lender Helaba.

DZ Bank will now evaluate options for its shipping finance loans. DVB has 7bn euros' worth of performing ship loans, while its 4.1bn internal bad bank consists mainly of sour ship loans, both of which DZ Bank is looking to shed.

As interest in the shipping assets has been low, DZ may opt to wind down the portfolio itself, people close to the matter said, adding that the bank is under no pressure to sell the portfolio in a hurry.

DZ Bank ditched efforts last year to sell all of DVB Bank partly due to low offers and its shipping business.

After a decade-long slump caused in part by too many vessel orders, segments of the shipping industry are seeing a fragile recovery, but that could be hit by a looming trade war between the United States and China as well as higher fuel prices.

MUFG worked with Bank of America and Linklaters on the deal, while Goldman Sachs and Freshfields acted as sellside advisers.

Updated: March 1, 2019 05:39 PM

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