Nedbank buys R5bn stake in Ecobank
Move broadens its network in Africa, where it lags behind its peers, and potentially gives it access to the largest lender in the Middle East
NEDBANK’s 20% stake in Ecobank Transnational Incorporated (ETI), the West African banking group, broadens its network in Africa, where it has lagged behind its peers, and potentially gives it access to the largest lender in the Middle East.
Thursday, SA’s fourth-largest bank said it would pay $493.4m (R5.5bn) for 4.5-billion new ETI shares, cementing its access to the largest banking network in Africa, with operations in 36 countries.
Nedbank has lagged behind SA’s other major banks in diversifying operations into the rest of Africa, which is where banking growth is expected.
Nedbank shares fell 1.8% to R214 on Thursday, in line with the overall negative performance of world bourses.
Bank earnings are dependent on economic growth, which is stagnating in SA while growing at much higher rates in many other African countries.
When Qatar National Bank, the largest lender by market value in the Middle East, announced it had increased its stake in ETI to 23.5% from 12.5%, to become the dominant shareholder last month, market watchers questioned whether Nedbank would take up its own shareholding.
Nedbank and ETI have had a strategic partnership since 2008. In 2011, when Nedbank lent ETI $285m to fund the acquisition of Nigeria’s Oceanic Bank, the deal gave it the option to convert the loan into equity.
Smit Crouse, Nedbank’s managing executive for the rest of Africa, said Nedbank saw Qatar National Bank’s shareholding as “complementary”.
“It strengthens the shareholder and client base … and it will intensify client referrals and opportunities,” he said.
SA’s Public Investment Corporation (PIC), which has an almost 20% stake, is now the third-largest shareholder in ETI.
Mr Crouse said 20% of ETI’s profit would flow to Nedbank once the deal took effect on Monday or Tuesday.
ETI, with assets of more than $23.4bn at end-June, made an attributable profit of $164m for the half-year. Based on this, it is estimated Nedbank could earn $64m a year from the deal.
“This investment also offers our shareholders participation in earnings growth from the faster-growing markets in sub-Saharan Africa,” Nedbank CEO Mike Brown said.
Allegations of mismanagement and an investigation into ETI’s corporate governance by Nigeria’s Securities and Exchange Commission last year created uncertainty whether Nedbank would take up its stake.
In March, controversial CEO Thierry Tanoh was dismissed after calls from the PIC.
Mr Crouse said Nedbank did not have concerns about ETI’s corporate governance as it had dealt with its problems “in a very professional manner” and “diligently”, and had taken Nedbank’s advice into account.
Patrice Rassou, head of equities at Sanlam Investment Management, said it was unclear how Qatar National Bank’s stake would affect Nedbank’s plans. “The only question remaining is what the Qatari intentions really are,” he said. “Are they trying to get a bigger stake? Would they have a working relationship with Nedbank and ETI?”
Mr Rassou said it might even be an opportunity for Nedbank to broaden its network into the Middle East.
Imara SP Reid head of research Stephen Meintjes said the deal raised questions about who would become the dominant shareholder in ETI. “It would be nice for Nedbank to have its own pan-African bank, but that cannot be taken for granted now.”
Mr Crouse said the deal gave Nedbank a far greater footprint in Africa than its competitors.
“By partnering with a local bank … Nedbank has the most diversified earnings and diversified portfolio out of Africa of all the banks,” Mr Crouse said.
Standard Bank is the largest bank in Africa by assets, and operates in 20 countries, while Barclays Africa Group has a presence in 12. FirstRand, through RMB, also operates extensively across the continent.