Lloyds Share News (LLOY)

By Jessica Hodgson, Carol Dean and Marietta Cauchi Of DOW JONES NEWSWIRES LONDON (Dow Jones)--A consortium consisting of Morgan Stanley's (MS) infrastructure fund, 3i Group's infrastructure fund (3IN.LN) and private equity fund Star Capital is the sole consortium conducting due diligence for HSBC Holdings PLC's (HBC) train rolling stock unit, people familiar with the matter said. The consortium, which is believed to have been the only bidder to have expressed sustained and serious interest throughout the process, has been conducting its due diligence for some time, people familiar with the matter said, raising the likelihood that it will eventually acquire the asset. Other bidders expressed initial or tentative interest in the asset, which was put on the market at the start of the year. These included CVC Capital Partners and Terra Firma Capital Partners. However, none has submitted a firm offer, people say. Other firms that typically look at U.K. infrastructure assets, including Arcus Infrastructure Partners, formerly Babcock & Brown; JP Morgan's infrastructure fund; and RREEF Infrastructure, the infrastructure investment arm of Deutsche Bank (DB) Asset Management, may have looked at the asset but have ultimately decided not to bid for it, people familiar with the matter have said. Banks that are providing staple finance in the sale--typically arranged by the seller's advising bank--have been in fairly detailed discussion with the consortium, a person familiar with the matter said. The finance amounts to just over GBP1.5 billion and is mainly divided between senior debt and a short-term bridge loan to a bond issue, a second person said. "This is a regulated business and you would expect the consortium to put in a lower equity check than a normal leveraged buyout," the person said, adding that the equity could be as low as 25% compared a typical LBO, where private equity firms currently pay for buyouts with around 50% cash. In addition to HSBC, there are around 10 other banks participating in the staple finance, the people said. Among the bank are Credit Agricole S.A. (ACA.FR), ING N.V., Lloyds Banking Group PLC (LYG), Royal Bank of Scotland Group PLC (RBS), Sumitomo Mitsui Banking Corp. (JD.SMU) and Societe Generale (GLE.FR). The business, which owns roughly one-third of the U.K.'s rail rolling stock, is valued at approximately GBP2 billion by HSBC, a person familiar with the matter said. None of the people familiar with the matter would comment on what the consortium was bidding. The disposal is part of a broader trend in which U.K. banks are raising cash by selling non-core assets. It's the second such attempt to dispose of the business, which is considered non-core. HSBC has made clear that, in contrast with some other forced asset sales by U.K. banks, it's not under pressure to divest the business and it won't sell unless it gets a high enough price. The apparently lukewarm interest in the asset suggests HSBC may face a decision as to whether to continue with the sale or abandon it, seeking to find a better time in the future. In June 2008, Royal Bank of Scotlan agreed to sell its train leasing firm, Angel Trains, to a consortium led by Babcock & Brown, now Arcus Infrastructure. Abbey National, a U.K. bank now owned by Spain's Banco Santander SA (STD), later disposed of its Porterbrook unit to a consortium including Deutsche Bank A.G. (DB), Lloyds Banking Group Inc. and Antin Infrastructure Partners. -By Jessica Hodgson; Dow Jones Newswires; +44207 8429373; jessica.hodgson@dowjones.com. (END) Dow Jones Newswires June 28, 2010 10:51 ET (14:51 GMT)