GOLDMAN SACHS: GE Capital has a $20 billion funding gap that needs to filled by 2020

  • General Electric‘s lending arm, GE Capital, has to fill a $US20 billion funding gap through ways such as selling assets, Goldman Sachs says.
  • CEO Larry Culp told CNBC Monday that he would cut the company’s leverage by selling assets.
  • On Friday, GE Capital sold a $US1.5 billion healthcare-equipment finance portfolio to US lender TIAA Bank.
  • Watch General Electric trade live.

General Electric‘s lending arm – GE Capital – has a huge funding hole that it needs to fill through ways such as selling assets, Goldman Sachs says.

“We estimate there is an about $US20 billion gap in Capital funding through 2020 that will be looked to be filled via Capital asset sales as well as an equity infusion from the Parent,” Joe Ritchie, an analyst at Goldman Sachs said in a note sent out to clients on Friday.

GE Capital has $US24 billion debt that will be due in 2019/2020, Ritchie said, citing a GE’s quarterly filing. Meanwhile, the unit expects earnings to be $US0 through 2020, and so it has to fill the gap through financing, Ritchie added.

With the company’s liability sitting above industry average level, Ritchie said he remains on the sidelines of the stock with a price target of $US9 – 12.5% above its current price.

“We don’t see GE as inexpensive given its leverage profile and tail risk associated with GE Capital,” he said.

GE management has recently been speeding up efforts to reduce debt and increase investor confidence. Larry Culp, who was appointed CEO on October 1, Monday told CNBC that his company has “no higher priority right now than bringing those leverage levels down,” and that he intends to do so by selling assets.

GE Capital is “too big” and has too much debt, Culp said.

“We’ve been materially shrinking that business down $US25 billion this year,” he added. “That work will continue. We’ve got a number of great assets there and it is important that people remember. We’ve got assets that match the liabilities.”

The latest step in the company’s planned $US25 billion reduction in GE Capital came on Friday, when it announced the sale of a $US1.5 billion healthcare equipment finance portfolio to US lender TIAA Bank.

And the parent company is also shedding of business units and investments. On Wednesday, GE sped up efforts to sell a $US4 billion stake in the oilfield-services provider Baker Hughes.

GE was down 55% this year.

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