Barclays Plc, the second-largest U.K. bank by assets, will increase its stake in Absa Group Ltd. to 62.3 percent and combine its African operations with the Johannesburg-based lender to boost growth across the continent.
Barclays, which owns 55.5 percent of Absa, will receive 129.5 million shares worth 18.3 billion rand ($2.1 billion) in return for merging operations across Africa with the bank, according to a regulatory statement today from Absa. After the deal, Absa will be renamed Barclays Africa Group Ltd., it said.
Barclays bought 54 percent of Absa in 2005 for $4.5 billion to expand in emerging markets. The London-based bank’s Africa business comprises interests in banking operations in countries such as Botswana, Ghana, Kenya and Zambia. The deal is expected to be completed in the first half of 2013, the statement said.
“Everyone wants to get into Africa and Absa will acquire a great portfolio of Africa assets in growing markets,” Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town, said in an e-mailed response to questions today. “They will have a lead on others in terms of serving South African corporates expanding into Africa.”
Absa gained the most in 3 1/2 years, rising as much as 6.5 percent and closing 5.5 percent higher at 149.50 rand in Johannesburg. Barclays climbed 1.4 percent to 249.90 pence in London, the highest level this month.
Robert Diamond, who resigned as Barclays chief executive officer in July after the lender was fined for manipulating global interest rates, sought to boost the British bank’s profit by combining Absa and Barclays’s products and customer bases across more than 10 African countries. Together, the banks have more than 40,000 staff on the continent, which has 1 billion people and faster growth rates than developed nations.
“While Barclays seems very committed to growing this business for now, we believe that by combining the operations the entity could be easier to sell in the future,” Gary Greenwood, a banking analyst at Shore Capital Ltd. in London, said in an e-mailed report to clients today. “There would be no shortage of interest in this business from potential buyers.”
As much as 80 percent of Africa’s adult population don’t yet have bank accounts. South African rival Standard Bank Group Ltd. has operations in 17 African countries while FirstRand Ltd. is also expanding. The larger South African lenders have more capital than regulators require and had an average return on equity of 15.9 percent in June, giving them the opportunity to invest in expanding their operations in Africa.
“Bringing together Barclays Africa with Absa is an important step in furthering our ‘One Bank in Africa’ strategy and the goal to become the ‘go-to’ bank across the continent,” Barclays CEO Antony Jenkins said in the statement. The U.K. bank is not planning to sell the combined African entity to boost capital and provide for future loan losses, he said on a conference call today.
Absa said on Oct. 31 that full-year losses on bad debts will be higher than previously expected amid a slowing economy. At least 12 senior executives have resigned since the appointment of Maria Ramos as Absa Group CEO in March 2009.
The transaction with Barclays will help Absa to “attract and retain” skills, Ramos said on the conference call. With the combination of both banks’ African assets, “the intention is not to cut jobs,” she said, adding that the lender has “the right management team in place.”