London 09/07/2015 - Henry Bath & Son Ltd is for sale again - or, at least, a big chunk of it is - just nine months after Mercuria bought it from JP Morgan, FastMarkets understands.
"There is an active sales process under way," a well-informed source said, adding that several candidates including two Chinese banks were bidding for the metal warehousing company.
"Henry Bath is for sale - I do not believe that Mercuria was very keen to take it on to start with," another source said. "There are two candidates that are currently looking at Henry Bath closely."
The two Chinese candidates are believed to be Bank of China (Boci), which had bid for Goldman Sachs' warehouse company, Metro, and China Construction Bank (CCB), which had expressed some interest in Henry Bath when JP Morgan put it up for sale back in 2013.
Another suspected candidate is Castleton Commodities International (CCI) - the company is expanding into metals and has hired three former JP Morgan metals managers this year including Peter Sellars, who ran Henry Bath prior to 2010 when he was CEO of RBS Sempra Metals.
Castleton declined to comment while Boci and CCB were not immediately available.
Switzerland-based Mercuria Energy group bought Henry Bath in October 2014 as part of a deal to acquire JP Morgan's physical commodities business for $800 million. The price tag had initially been much higher at $3.5 billion but was then dramatically scaled back after certain supply agreements and inventory positions were taken off the table.
"Mercuria was obliged to take on Henry Bath even though they were not keen to do it - it was almost part of the terms of surrender," a third source said.
In October 2014, in an interview with the Financial Times, Mercuria CEO Marco Dunand said he had been approached by several parties looking to invest in Henry Bath and was "open to the idea of having an investor taking a substantial stake".
The bold statement took some time to bear fruit but the process is now actively in place. Mercuria is still favouring the route of a large stakeholding rather than a full sale of Henry Bath, FastMarkets understands.
Mercuria had always said that it planned to operate Henry Bath as a standalone subsidiary, independent from its trading operations, so a shareholding makes sense, the first source noted.
The price tag on Henry Bath is thought to have been as high as $200 million before new LME rule change proposals were announced last week, further reducing the attractiveness of the LME warehousing business.
To achieve its objective of elimating queues at its listed warehouses, the LME is proposing to increase daily load-out rate requirements and introduce a cap on the rent charged for metal in a queue.
"The cash run-off value is decimated by the new queue-based rent cap (QBRC) proposal," the first source said, explaining that a warehouse company could no longer bank on being able to move all off-warrant stocks in-warehouse against full rent to guarantee minimum revenues.
Henry Bath currently has 381,414 tonnes of metals warranted on the LME, according to the latest LME stocks and queues report published on Friday. This can generate around $19.45 million in free-on-truck (FOT) charges and another $125,000 in rents, according to FastMarkets' calculations.
The warehouse company also holds at least 500,000 tonnes of stocks in off-warrant facilities, which charge lower FOTs and rents. Still, these could potentially generate income of up to $20 million, taking the total value based on stocks to a maximum of $40 million.
"Rent income is limited so the value really depends on how much FOT revenue they are due," a fourth source said. "They offer no physical services and their global footprint is so-so... there is no goodwill to an LME warehouse business today if the absolute only thing they do is warehousing."
In December 2014, the Reuben Brothers acquired warehouse company Metro International from Goldman Sachs for $75 million, a price tag that has no reason to be exceeded for Henry Bath, several sources told FastMarkets.
Henry Bath & Sons Ltd operates 56 LME-listed warehouses around the world including 28 sheds in Rotterdam. It also has non-LME warehouses in China.
In total, it holds fewer than 1 million tonnes of stocks - between 800,000 and 900,000 tonnes, according to several warehousing sources. Around two-thirds of that total could be stored off-warrant in Rotterdam.
(Editing by Mark Shaw)