Barclays Works With South Africa Central Bank to Manage Risk

Updated on
  • U.K. lender committed to minimizing impact on South Africa
  • Central bank and Treasury will manage money flows from sale

The South African Reserve Bank said it will collaborate with Barclays Plc to manage the flow of money and minimize risk of causing fluctuations in the rand as the British bank prepares to reduce its stake in Barclays Africa Group Ltd. 

The U.K. lender has had a “constructive and open dialog” with South Africa’s financial authorities about its intentions, National Treasury and the central bank said in an e-mailed statement Wednesday. Barclays has shown commitment to structure a transaction that will minimize the impact on the countries where Barclays Africa operates, they said.

Barclays plans to sell down its 62.3 percent interest in the Johannesburg-based lender, formerly known as Absa, over the next two to three years to less than 20 percent as part of a wider overhaul of the U.K. lender by new Chief Executive Officer Jes Staley. Barclays’ stake in the bank is valued at almost 77 billion rand ($4.9 billion) and any share sale may cause a movement in the rand, which has already slumped to a record low against the dollar this year.

“The Reserve Bank will work with Barclays Plc and Barclays Africa to ensure that any potential risks from the transaction are mitigated and appropriate measures will be taken to manage capital flows arising from the transaction,” statement shows.

Apart from selling down its stake in Barclays Africa, the British lender may also dispose of its operations in Egypt and Zimbabwe, which it still controls. Barclays Africa has operations in 10 countries on the continent including Botswana, Ghana, Tanzania, Uganda and Zambia. The African lender and authorities in countries including Zambia, Tanzania and Kenya have been forced this week to address fears that the bank will shut down and give assurances that Barclays Africa’s operations will continue unaffected.

Barclays Kenya is running on “a very normal basis” and customer savings are safe, Managing Director Jeremy Awori said in Nairobi Tuesday.

As word of the planned sale leaked, Barclays could have done more to reduce concerns among investors, said Simon Brown, Johannesburg-based chief executive officer of trading company JustOneLap. “News leaks, and companies need to know that and keep ahead of the news. Companies are far too lax about keeping investors informed.”

While Barclays hasn’t identified a potential buyer, the sale of a stake in Barclays Africa is an opportunity for black South African investors to boost ownership and in line with efforts to improve economic equality following the end of apartheid. The Public Investment Corp., which manages the bulk of the South African government’s pension money, has also said it may be interested in increasing its holdings.

“Black economic empowerment investors would very likely participate in these share placements as many of the previous BEE banking deals have matured,” said Adrian Cloete, a banks analyst at PSG Wealth, a Cape Town-based firm that manages more than 300  billion rand. “There would be strong demand from institutional investors for Barclays Africa at the current valuations.” Smaller parcels of shares could be placed among South African and offshore fund managers at a relatively small discount to the market price, he said.

Barclays Africa has risen 6.6 percent since the parent company said Tuesday it will reduce its holdings, while the British lender has dropped 8.2 percent.

(Updates with investor comment starting in sixth paragraph.)
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