As Diamond Readies Bid, South Africa Warns on Bank Buyouts

  • Regulators will look `negatively' on private equity deals
  • Banks need long-term investors: SARB Deputy Governor Naidoo

South Africa raised caution over Bob Diamond’s potential offer for Barclays Plc’s local unit, with the central bank signaling that private-equity bidders for the country’s third-largest lender would face opposition from regulators.

“As a regulator we won’t be comfortable with a private-equity play for any of the banks,” Deputy Reserve Bank Governor Kuben Naidoo told reporters in response to questions in Pretoria on Tuesday, without identifying any potential companies or deals. The central bank will “look quite negatively” on a buyout because these typically involve leverage and exit strategies, and banks need long-term commitments from shareholders with deep pockets, he said.

Kuben Naidoo

Photographer: Kevin Sutherland/Bloomberg

The comments come as Diamond pulls together a group of investors, including U.S. private-equity giant Carlyle Group LP, to buy a stake in Barclays Africa that the London-based lender is exiting. The former Barclays chief executive officer’s New York-based Atlas Merchant Capital LLC is part of the consortium, which will seek to combine his African-focused business Atlas Mara Ltd. with the Johannesburg-based lender if a bid succeeds.

Diamond, 64, who ran Barclays before his 2012 ouster during the Libor scandal, said on a conference call on April 26 that the consortium includes long-term strategic investors and that there is funding in place. A spokesman for Atlas Mara declined to comment.

‘Deal Unlikely’

“Any transaction like this would have to pass a shareholder vote and get regulatory approval first, which in my view would be very unlikely,” said Adrian Cloete, a banks analyst at PSG Wealth in Cape Town, which manages more than 300 billion rand ($20 billion). “It would also be unlikely that some investors would be allowed to spin-off the African operations in Barclays Africa. This is where the long-term growth potential is.”

Representatives from Atlas Mara held meetings with the Reserve Bank on Tuesday, according to reception records at the Pretoria-based regulator. Naidoo declined to comment on whether meetings took place.

Under present rules, an investor seeking to buy more than 15 percent of a South African lender needs approval from the Reserve Bank, while the purchase of a controlling stake will need the consent of the finance ministry, which will be guided by central bank officials, Naidoo said.

A group of South African investors, including the Public Investment Corp., Africa’s biggest money manager, is planning to make an offer for 10 percent of the shares that London-based Barclays initially wants to sell in the African unit, a person familiar with the transaction said on April 8. The PIC, which already owns 5.6 percent of Barclays Africa among the 1.85 trillion rand it manages on behalf of South African government workers, said in January it would be interested in a larger stake.

Lack Capability

Started in 2013, Atlas Mara has made acquisitions to gain access to seven sub-Saharan countries from Botswana to Nigeria, with plans to expand that to 10 to 15 markets. Atlas Mara is led by a former top Barclays executive for Africa under Diamond, ex-Marine John Vitalo. Barclays Africa, formerly known as Absa Group, has a presence in 12 countries across the continent. Atlas Merchant Capital also started in 2013. Its total assets are valued at $224 million and is in the fundraising phase with its first buyout fund, according to data compiled by Bloomberg.

Before Atlas Mara said a consortium had secured funding for a potential bid, Barclays CEO Jes Staley said in a Bloomberg Television interview on March 10 that Diamond would lack the “financial capability” to buy the whole of Barclays Africa. That company’s market value is the equivalent of $7.8 billion, while Atlas Merchant’s first fund is pegged to be $260 million and Atlas Mara’s market value is $328 million. Carlyle’s market value is $5.35 billion.

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