Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

The good news for Barclays CEO Jes Staley: the chances of having to sell the U.K. bank's African business to his predecessor Bob Diamond are looking increasingly remote.

The bad news? The road out of Africa looks like a long and winding one.

A bid by Barclays's former chief executive to mount a joint bid with Carlyle Group for the bank's African business has stumbled, Bloomberg News reported. To be fair, getting financing and regulatory approval was always going to be tough. But for Barclays, this signals a quickish win in Staley's strategy will be rather more uncertain.

There just don't seem to be many strategic buyers lining up to buy what's left of Barclays Africa, which is worth about $4.4 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 said to be facing setbacks. A group of South African investors including Public Investment Corp. are struggling to raise financing, according to Bloomberg News. And buyout firm Abraaj Capital simply lost interest.

Out of Africa
Barclays aims to cut its stake in Barclays Africa to below 20 percent in the next few years to free up capital
Source: Bloomberg, company data

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 percent from 62 percent.

But since then, spikes in volatility and a little thing called Brexit have made markets jumpier. The political-risk list is also growing longer, with U.S. elections this year and German and French elections the next. Even assuming Barclays maintains the pace of selling 12 percent every six months, it would still hold about a quarter of the African bank by end-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 stabilized, and some emerging-market stocks have rebounded.

Emerging Rebound
Barclays Africa shares have rebounded along with broader emerging-market stocks, unlike its U.K. parent.
Source: Bloomberg

But not all. And while the South African economy has improved, the International Monetary Fund has slashed its 2016 growth forecast for the country to just 0.1 percent. The broader environment is still tricky.

Either way, Staley doesn't really 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 score-card on Monday, he said Barclays had cut head-count by 13,600 in nine months and was "on track" to slash non-core assets to 20 billion pounds from 47 billion pounds by the end of 2017.

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 1 percentage point to its core capital ratio. 

It looks like Mr. Market, not Mr. Diamond, will decide if those promises are kept.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net