Barclays Plc decision to sell off its stake in Barclays Africa — which holds nearly 69 per cent shareholding in the Kenyan subsidiary — could run into headwinds due to scarcity of ready buyers and regulatory obstacles, investment bankers at Citi say.
The Citigroup Global Markets researchers — linked but operationally independent of the US-owned commercial bank by the same name — have further questioned the rationale behind the planned sale of Barclays Africa unit saying that it had a good return on equity and reasonably high growth in attributable profit relative to the performance of the bank’s subsidiaries outside Africa.
Barclays Plc chief executive Jes Staley on Tuesday confirmed that the multinational will be selling its 62.3 per cent interest in Barclays Africa over the next two to three years to a level that allows it to deconsolidate in the face of increased regulatory and capital pressures facing global banks.
“Within the Barclays Plc results, Africa attributable profit grew four per cent on a constant currency basis in 2015 and the return on tangible equity (RoTE) of 11.7 per cent is higher than the core bank average and double the investment bank. Given the lack of buyers and long lead time, we question the rationale behind the disposal,” said Citi analyst Charles Russell in a note to clients.
Mr Russell said the decision by the UK lender to give itself a two- to three-year time-frame to conclude the divestiture is indicative of the lack of a ready buyer waiting in the wings to take up the stake.
Barclays Plc effectively owns 42.67 per cent in Barclays Kenya indirectly held through Barclays Africa, which holds a 68.5 per cent stake in the Kenyan unit.
According to Citi, possible buyers of the Barclays stake may include global banks, regional players from emerging or developed markets such as China or Australia, or even an in-region African player.
“We do not think any of these possibilities are willing buyers. Locally, we don’t see any obvious deep-pocketed buyers either. We also think a possible scenario could be an interest from an out-of-sector player (like a telco or tech) interested in the African banking angle,” said Mr Russell.
Barclays Africa’s net asset value stands at £3.4 billion (Sh482 billion), according to the lender’s 2014 annual report, with a buyer likely to add a premium on buying the stake on offer.
The Citi analysis shows that in order for Barclays Plc to take down its stake to a non-controlling, non-consolidated position, the lender needs to sell off at least 42.3 per cent of its Barclays Africa stake. The timing of the sale would be strongly influenced by the prevailing price of the stock, which is listed on the Johannesburg Stock Exchange.
Citi further reckons that the sale might hit some regulatory headwinds in South Africa, where Barclays Africa is a domestically significant financial institution, and would be among the key institutions looked upon to provide the country’s financial sector with stability in case of a crisis.
Barclays Africa is well capitalised with a balance sheet of more than Sh6.4 trillion (one trillion South African rand), with its CEO Maria Ramos saying that it will continue to invest in its continental expansion plan.
“As such, we believe the regulator would prefer, and might even mandate, that a sale of this nature needs to occur as a single transaction, not as a series of transactions to multiple institutional shareholders,” said Mr Russell.
Barclays Plc will also need to get backing of some of the minority interests in Barclays Africa to proceed with the divestiture, with the multinational saying a minimum voting of 75 per cent is required in such a transaction.