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Co-op Bank seeks disposal of energy assets to reduce debt

The Co-op Bank is preparing to spin off its renewable energy lending operations into a new business that could lead to the stock market listing of a portfolio of assets worth more than £500m, The Telegraph has reported.

The separation of the business is part of the troubled lender’s plan to dispose of about £15bn of assets considered “non-core” to its future business following its £1.5bn recapitalisation.

The Co-op Group, which runs supermarkets, pharmacies and funeral homes, said that the crisis at the bank will mean the group will not pay an interim dividend.

Instead, the group’s seven million members will receive vouchers for 10 per cent off their Christmas shopping at Co-op food stores. The group, which typically pays out its dividends from profits, last year halved its dividend to £8m.

The ‘Plan B’ £1.5bn rescue deal means the Co-op group will only retain a 30 per cent stake in the bank, leading to talks between Co-op and business secretary Vince Cable about whether the bank can retain its name.

The term co-operative is protected by UK law and is on the list of “sensitive names” for new companies.

A consultation is already running by the Department for Business Innovation and Skills on whether protection should continue for the co-operative name.

As it stands Mr Cable will continue to have the power to remove the use of the name if it is considered desirable to protect consumers, promote competition or protect the integrity of the UK financial system.

As part of its “ethical” strategy, the Co-op Bank had become one of the leading providers of finance to local renewable energy projects across the UK, but the lender admitted many of these investments carried “low yields” and about a third were still at the “development phase”.

In total the Co-op has gross outstanding loans linked to renewable energy infrastructure of £531m. On top of this, the bank has undrawn lending commitments to renewable projects totalling £115m.

Much of these loans are to onshore wind farms, though the bank has also lent money to geothermal and hydro power projects.

Selling off the renewable business is part of a turnaround strategy for the Co-op Bank, which is itself expected to list on the stock market next year, as part of its £1.5bn recapitalisation plan.

The renewable portfolio represents just 3.5 per cent of the Co-op Bank’s total non-core book, the majority of which constitutes legacy residential mortgage and commercial lending portfolios.

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