Banks Battling European Debt Crisis Lose on African Deals

The colonial ties that bound French and Portuguese banks such as BNP Paribas SA (BNP) and Banco Espirito Santo SA to Africa are being loosened by the European debt crisis.

Lenders from Lisbon and Paris are retreating from funding projects in Africa as they ride out debt woes at home and prepare for more stringent global capital rules. Citigroup Inc. (C), Standard Chartered Plc (STAN) and Barclays Plc (BARC) are filling the gap, while Johannesburg-based Standard Bank Group Ltd. (SBK) and Nedbank Group Ltd. (NED) are boosting mining and oil loans to benefit from an investment surge in the world’s poorest continent.

“We’ve definitely seen European banks not as aggressive, or in some cases actually leave this space,” Daniel Hanna, Standard Chartered’s southern African head of origination and client coverage, said by phone from Johannesburg on April 5. That’s “across the various different products, whether it’s syndication, finance, or project finance,” he said.

Citigroup was the leading arranger of syndicated loans in sub-Saharan Africa over the past 12 months with nine deals worth $1.2 billion, followed by London-based Standard Chartered. BNP, France’s largest bank, ranks 25th, with three transactions, according to data compiled by Bloomberg. Between 2008 and 2010, BNP was among the top five.

Increased Investments

Standard Bank, Africa’s biggest bank, was the third-largest arranger of syndicated loans over the past 12 months with eight offerings, while Barclays, which works through its Johannesburg-based Absa Group Ltd. unit in Africa, ranks fourth largest, with 10 deals valued at $621 million.

Credit Agricole SA (ACA) and Banco Espirito Santo, Portugal’s largest publicly traded bank, are among lenders that have reduced African activities as the world’s largest oil and mining companies increase investments in Africa. Credit Agricole sold its Banque Indosuez Mer Rouge unit in Djibouti in 2010 to refocus its international retail operations on Europe, while BNP sold its Madagascan unit last year.

Nigeria, Africa’s largest oil producer, will spend $100 billion with partners, including Royal Dutch Shell Plc (RDSA), Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), over the next five years to explore for crude oil and gas, according to the state-owned Nigerian National Petroleum Corp. An iron-ore boom in West Africa may see investments of $25 billion by companies such as Rio Tinto Plc (RIO), ArcelorMittal SA and African Minerals Ltd. (AMI) on projects, including the construction of ports and rail lines, according to JPMorgan Chase & Co. (JPM)

New Money

“We’re seeing banks, or capital, that haven’t historically participated in African energy looking to come into it,” Simon Ashby-Rudd, global head of oil and gas at Standard Bank, said in a May 2 interview from London, highlighting the Middle East and Asia, especially China, as a source of new money. “You’ve got a situation where the historical source of capital is probably staying flat at best.”

Standard Bank’s global oil and gas budget has increased threefold over the past two years, with 70 percent focused on Africa, Ashby-Rudd said.

BNP and Societe Generale (GLE) typically operate in oil and resource-rich former French colonies, mostly in north and west Africa, such as Ivory Coast, Niger, Gabon, Guinea and the Republic of Congo. Portugal’s Caixa Geral de Depositos SA, Banco Espirito Santo, Banco Comercial Portuguese SA and Banco BPI are involved in Angola, the former Portuguese colony and Africa’s second-largest oil producer.

Mission Capital

BNP has cut 1,400 jobs amid efforts to replenish capital by the end of next year. BNP and Societe Generale both booked first-quarter losses on the sale of loans to deleverage their corporate and investment banking businesses as French banks, including Credit Agricole and Groupe BPCE, took writedowns related to their holdings of private and public debt in Greece, Portugal, Ireland, Italy and Spain.

Portuguese banks were required to raise their capital ratios to 9 percent by the end of 2011 and to 10 percent by the end of 2012 as part of an international aid plan. The European Union banking regulator also ordered the region’s lenders to have a 9-percent capital ratio by the end of June after marking down their holdings of sovereign debt to market prices.

South Africa’s six-member FTSE/JSE Africa Banks Index gained 23 percent over the past 12 months, while Europe’s 48-member STOXX 600 Bank Index declined 31 percent.

Forced Review

BNP and Millennium BCP Investimento said they didn’t have anyone available to comment. Banco BPI, based in Porto, Portugal, hasn’t scaled back in Africa, director Jose Amaral said in a March 13 e-mailed response to a query.

“Most European banks are being forced to review their strategies,” Alan Fernandes, head of structured finance at BES Investment Bank, part of Lisbon-based Banco Espirito Santo, said in an e-mailed reply to questions. “We have negotiated partnerships with multilaterals in order to have funding.”

European sovereign debt obligations and capital regulations have also forced banks to reorganize balance sheets, constraining medium- to long-term funding, Pierre Wolmarans, Societe Generale’s southern Africa head, said by phone. The company is syndicating out more loans, he said.

Nedbank will probably be able to provide about $200 million in loans for mining in Africa, excluding South Africa, this year and $150 million in the oil industry, Nivaash Singh, Nedbank’s international mining finance head, said by phone from Johannesburg on May 3. That’s 25 percent to 30 percent more than last year. Nedbank, South Africa’s fourth-largest bank, is controlled by London-based insurer Old Mutual Plc. (OML)

Aggressive Expansion

Around the corner from Nedbank’s headquarters in the Johannesburg business hub of Sandton, Rand Merchant Bank, the investment banking unit of FirstRand Ltd. (FSR), Africa’s second-largest bank, aims to do the same.

“Oil and gas is a business that we are expanding into quite aggressively and our book is growing in line with that strategy,” Gary Buisansky, a transactor at Rand Merchant Bank’s resource finance team, said by phone.

The departure of Western European lenders has “taken some of the pressure off” and opened the way for Citigroup, Standard Chartered and Barclays to make more money, Stephen van Coller, chief executive officer of Absa Capital, said in an interview. “It’s allowed regional banks to get some of their margin back.”

To contact the reporters on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net; Carli Cooke in Johannesburg at clourens@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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