Barclays finds it hard to get out of Africa
THE good news for Barclays CEO Jes Staley: the chances of having to sell the UK bank’s African business to his predecessor Bob Diamond look increasingly remote.
The bad news? The road out of Africa is long and winding.
A bid by Barclays’ former CEO to mount a joint bid with the Carlyle Group for the bank’s African business has stumbled, it has been reported.
To be fair, getting financing and regulatory approval was always going to be tough. But for Barclays, this signals that a quickish win in Staley’s strategy will be more uncertain.
There just don’t seem to be many strategic buyers lining up for what’s left of Barclays Africa, which is worth about $4.4-billion (about R63-billion).
Diamond, whose plan to combine it with his Atlas Mara buyout vehicle looks shaky now that talks with Carlyle have stalled, is not the only bidder facing setbacks.
A group of South African investors, including the Public Investment Corporation, are reportedly struggling to raise financing. And buyout firm Abraaj Group lost interest.
The price tag, economic risk and regulatory hurdles make it a fairly niche target. That puts more of an emphasis on financial markets’ ability to absorb gobs of equity that Barclays will have to sell if it wants to cash out of Africa.
It’s not impossible: Barclays pulled off a first sell-down back in May, placing $879-million worth of shares at a discount and cutting its holding to just above 50% from 62%.
The rest of Barclays Africa is worth about $4.4-billion.
But since then, increases in volatility and Brexit have made markets jumpier. The political-risk list is also growing, with US elections this year and German and French elections the next.
Even assuming Barclays maintains the pace of selling 12% every six months, it would still hold about a quarter of the African bank by the end of 2017. Would this be so bad? There’s a chance that a little bit of time might flatter Barclays Africa as an asset, particularly if its home markets keep improving. A rout in commodity prices appears to have stabilised, and some emerging market stocks have rebounded.
But not all. And while the South African economy has improved, the IMF has slashed its 2016 growth forecast for the country to just 0.1%.
The broader environment is still tricky.
Either way, Staley doesn’t have much time.
He’s made a lot of promises to investors to improve earnings and balance sheet strength in return for a slashed dividend this year and next, and selling the African stake is part of that basket of pledges.
Rattling off his scorecard, he said Barclays had cut headcount by 13 600 in nine months and was “on track”
Mr Market, not Mr Diamond, will decide on promises
to slash noncore assets to £20-billion (R379-billion) from £47-billion by the end of next year.
Africa is only one of many assets on the block, and it’s easily the biggest and therefore most complicated to sell. Barclays reckons the combination of the sell-down of the unit along with its dividend cut will contribute one percentage point to its core capital ratio.
It looks like Mr Market, not Mr Diamond, will decide if those promises are kept. — Bloomberg