NATIONAL Australia Bank has unveiled plans for a cut price stock market flotation of Clydesdsale Bank, which a prominent investment manager said could pave the way for the takeover of the business.

The Australian Group said it will proceed next month with a flotation which it said could value Clydesdale at £1.5billion. This would represent only around half the £2.7 bn book value the bank had at 30 September.

The group hopes the flotation will put a valuation of up to £2bn on Clydesdale, or 76 per cent of its book value.

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The exercise comes months after the talk in the market was that NAB would seek a £2.5 billion valuation of Clydesdale, which employs around 4,000 people in Scotland.

NAB’s chief financial officer Craig Drummond said yesterday the company had cut the expected valuation of Clydesdale in response to the volatility seen on global stock markets amid concern about the prospects for the global economy.

"There's no question, it's a little lower,” he told Australia’s Fairfax Media. ”It's not dramatically lower but it's a little lower than we would have expected, and it's a little lower for the obvious reason that markets are volatile and a bit soft,"

Justin Urquhart-Stewart, of Seven Investment Management, said: “I’m very surprised they’re going ahead with it.”

He said NAB appeared to have accepted a significant cut in the valuation of Clydesdale as the price for floating the business.

NAB plans to sell 25 per cent of the shares to institutional investors such as pension funds through an initial public offering. It expects the IPO to value Clydesdale at £1.54bn to £2.07bn.

“I would have pulled it or considerably constricted it in scale,” said Mr Urquhart-Stewart. He believes NAB should have completed the IPO in smaller stages, so that it could get a higher price for future tranches of shares if stock market sentiment improves.

But Mr Urquhart-Stewart said NAB’s directors were probably confident it could complete the IPO, even if only at the bottom of the price range. NAB has met more than 300 institutions since announcing last year that it planned to offload Clydesdale.

He said there could be strong interest in Clydesdale Bank. It is being demerged in a group along with NAB’s Yorkshire Bank as CYBG.

Mr Urquhart-Stewart noted NAB had spent lots of time and money preparing Clydesdale for disposal. As a challenger bank with a brand and a cleaned up balance sheet Clydesdale could form an attractive target for a firm that wanted to enter the UK market.

TSB was acquired by Spain’s Sabadell for £1.7bn last year, soon after being separated from Lloyds Banking Group.

Alastair McCaig at the IG spread-betting group noted Clydesdale would have more freedom to set dividends at potentially attractive levels than banks that had received big taxpayer bail-outs, such as RBS.

Private shareholders will not be offered shares in the IPO. They will be able to buy shares on stock markets once trading in the securities starts.

Shareholders in NAB will be allotted 75 per cent of the shares, which they will be able to sell in the market.

NAB said it may elect not to proceed with the IPO or to complete only a partial IPO, in which case it would retain a shareholding in CYBG.

But Mr Drummond reiterated that NAB planned to go ahead with the deal.

The group has long wanted to sell Clydesdale Bank, which has absorbed lots of management time and faced big challenges.

On Saturday NAB’s chairman Ken Henry said: "It will be very, very important to get this behind us. The UK story has been quite distracting for both management and the Australian board.”

Mr Henry’s predecessor Michael Chaney told NAB’s general meeting in December that one of the most “disappointing” parts of his 10-year tenure has been the time the group has taken to exit the Clydesdale and Yorkshire bank businesses.

However Clydesdale Bank’s chief executive David Duffy believes Clydesdale can challenge the dominance of the big players in the UK.

Mr Duffy, who took charge in June, has said Clydesdale could act as a consolidator in the challenger bank market.

The company will focus initially on proving the durability of the Clydesdale model.

The company has set ambitious targets to grow its retail business and SME lending.

NAB has set price range for the proposed IPO at between 175p and 235p per CYBG share.

The issue price will be announced on 2 February 2016 based on the response to the IPO.

Trading in the shares will start on 2 February on the London Stock Exchange and on the Australian Securities Exchange the following day.

NAB bought Clydesdale for £420m in 1987. It acquired Yorkshire Bank for around £900m in 1990.