Barclays - Absa deal to test empowerment

By Wendy Hall - Business Day

 

Barclays, the UK banking group that is considering taking a controlling stake in local bank Absa, will set a precedent for foreign firms buying into South African companies with empowerment interests.

The head of legal services at the Reserve Bank’s banking supervision department, Michael Blackbeard, said there were no prior examples regarding the effect of a foreign takeover on black economic empowerment partnerships.

The specific transaction between Barclays and Absa was being “judged on its legal merits in terms of the Banks Act. The obligations which must be fulfilled as stipulated by the financial services charter are to be (fulfilled) between the banks themselves,” Blackbeard said.

The Mvelaphanda-led Batho Bonke Consortium emerged in April last year as Absa’s empowerment partner. Tokyo Sexwale, chairman of Mvelaphanda and Batho Bonke, is also a director of Absa.

In terms of the financial services charter, Barclays will have to retain Batho Bonke as a 10% shareholder in the company and increase its empowerment shareholding to 25% by 2014.

According to financial services analyst Ross Jenvey of Andisa Securities, Barclays may “attempt to gain a 60,1% stake in Absa … to retain control after dilution”.

Whether a possible purchase by Barclays is likely to dilute Absa’s empowerment holdings is “a factor which will be addressed in the regulator’s report and presented to the finance minister for consideration”, Blackbeard said.

Vuyo Jack, an analyst at Empowerdex, said charter stipulations meant foreign ownership was unlikely to hamper empowerment initiatives, which he said were valuable to companies forced to comply with empowerment legislation.

Since Barclays announced in September last year that it would make an offer for Absa, the local bank’s share price has risen 20% to well above the R70 level.

“The increase in share price means added value for empowerment shareholders, as they see their options are in the money,” Jack said.

However, a banking analyst who did not wish to be named said Absa’s shares were likely to hover near present levels until details of the deal were clarified. “The market is waiting to see what Barclays will be willing to pay.”

Shareholders could also benefit from an ongoing debate, facilitated by the Barclays deal, to restructure the partnership between Absa and Batho Bonke. According to analyst Heather Sonn of Legae Securities, the Batho Bonke consortium’s Absa options were “deeply in the money”.

Sonn said Barclays ’ bid would be to the advantage of Absa’s empowerment partners, due to the fact that Barclays had “a global debt capability which it can bring to the party in this transaction”.

Empowerment transactions are currently shifting towards debt as opposed to the equity and options model. Barclays could give Absa access to the global credit markets and a significant debt capability.

Barclays has yet to issue a formal offer for Absa. Barclays would need to offer at least R20bn for a controlling stake. The group is awaiting regulatory approval of the deal, expected to be announced by March.

A formal application to acquire a stake in Absa was submitted to the Registrar of Banks on December 1.

The acquisition of Absa will extend Barclays ’ retail presence in SA. It represents the largest foreign investment in SA’s financial services sector for decades.

 

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