Nedbank urged to keep market in loop on Old Mutual move

AS Nedbank continues to prepare itself for its separation from Old Mutual plc, the offloading of shares has been flagged by those who are watching the company closely.

Head of financials at Investec Asset Management Chris Steward said Nedbank and Old Mutual would have to be clear about the handling of the shareholding to appease local regulators.

“The last thing the regulator wants to see is a large overhang of stock from an important bank, which perhaps could result in a disproportionate sale or dumping of that stock on the market, which then results in a precipitously depressed share price,” he said.

Steward also said if the group did not communicate clearly to the market, the share distribution could be wrongly perceived by inexperienced investors as a negative response to operational issues rather than simply a technical function of the share being unbundled.

Both Nedbank and Old Mutual have said the sale of Old Mutual’s stake in the bank would not be to an external shareholder.

Ingrid Johnson, the chief financial officer at Old Mutual plc, said that of the 54% stake that Old Mutual plc owned, 17% would be retained by Old Mutual Emerging Markets as part of a continued strategic partnership with Nedbank.

The balance of 37% was what the group would look to distribute to existing shareholders, she said.

The exact ownership level was yet to be determined although it would be “based on Old Mutual Emerging Market’s ongoing commercial relationship with Nedbank and influenced by the implications of the incoming Twin Peaks regulation”, said Mike Brown, Nedbank’s CEO.

The biggest focus for Old Mutual plc in the separation process is ensuring that each of the businesses has its management structures in place as part of the “business readiness” process Old Mutual plc is driving.

Since Nedbank is already listed on the JSE, the biggest factor relating to its independence is Old Mutual reducing its existing shareholding and distributing shares to existing shareholders.

Brown pointed out that institutional shareholders who are mandated to hold emerging market shares as part of their portfolio would still realise their targets within Nedbank’s structure through the bank’s investment in Ecobank Transnational Inc and Banco Unico in Mozambique, as well as other operations in the Southern African Development Community.

In 2014, Nedbank spent R6-billion to buy a 21.8% stake in Ecobank. The bank currently has operations in 36 countries in Africa, which was a plus for Nedbank, said Steward.

“We know that Ecobank may not have a huge amount to offer in terms of returns currently, but they have a substantial footprint across West Africa and that is very important,” said Steward.

Ecobank’s results in the first half were weak, negatively impacting on Nedbank’s earnings in the rest of Africa unit.

Adrian Cloete, a portfolio manager at PSG, believes that the investment in Ecobank will pay off in the long run as the group’s broad footprint gives Nedbank access to markets that may be difficult to penetrate.

“Nedbank’s stakeholding in ETI Nigeria is strategically smart because they get exposure there, they get a share of the profits, but they also get to minimise the risk,” he said.

The bank also plans on increasing its stake in Banco Unico to 50% in the next six months, which it set out to do last year.

Brown said that throughout the unbundling process, Nedbank would continue business as usual.

“We have been operating on a stand-alone basis, separately listed and with an independent board. There will be no changes to strategy, operations, staff or any impact on our clients,” he said.