African Bank buys out Grindrod Bank

‘African Bank plays in the consumer segment broadly, and with Grindrod you have a business bank, so they actually complement one another’: African Bank group executive Zweli Manyathi.

DUDU RAMELA: Let’s get you the latest information on a deal worth R1.5 billion. African Bank has acquired 100% of Grindrod Bank, a move African Bank believes will allow it to accelerate its entry into the South African business banking sector.

Grindrod Bank was first established as a boutique merchant bank in 1994. They’ve had several suitors over the years, so this is quite an interesting move.

We’re joined now by Zwele Manyathi, group executive of business banking at African Bank. Thank you so much Zwele, for joining us this evening. As we mentioned, they’ve had a number of suitors over the years and you’ve managed to clench the deal. Maybe take us back – what informed this decision or direction for African Bank?

ZWELI MANYATHI: Good evening to you. Thank you for the opportunity for me to talk about this very interesting transaction. African Bank had its own strategy, which ultimately said we’re going to play in the middle of the pyramid. What we also said to ourselves was let’s understand what capabilities are required for us to win in terms of this strategy. We had different options.

One option was greenfields and the other option was to buy something, an outfit that better suits the kind of capabilities we’re looking for. We looked around and African Bank ended up with this very interesting option at Grindrod.

Read: African Bank Ltd to acquire Grindrod Bank in R1.5bn deal

Grindrod has a very, very good fit with the capabilities that we’re looking for to build a middle-of-the-pyramid bank. We had discussions with them and they were interested to talk.

We first wanted to align the philosophy and culture, just to have a sense of whether or not there’s a true fit in this relationship that we were looking to build.

After a few discussions, both sides came to the conclusion that it makes sense for us to do this. Besides, as part of Grindrod, which is really a logistics company, there was always going to be a challenge on where Grindrod would be prioritising its capital investments.

On the other hand, we are sitting with a very strong capital position, liquidity position, and we are looking for a springboard, if you like, into business banking – and to just fit.

DUDU RAMELA: You speak of alignment of philosophies and capabilities, their meeting capabilities you were actually looking for. Just remind us of that philosophy.

ZWELI MANYATHI: If you please, just think, as you said earlier when you opened, they’ve been a boutique investment bank, they’ve got a very strong property portfolio, a very strong lending portfolio. And as a matter of fact they had what I think was a good bounce-back in their December financials. And they do have, in spite of the fact that people see them as a KZN-based franchise, interestingly 40% of their business comes from KZN and 60% come from other provinces – which means that they actually are quite a national player.

Also, our view is that when we engage in business banking, we do so with the specific purpose of strengthening the capacity of entrepreneurs to succeed.

We found that philosophically we were in line insofar as that is concerned. That becomes very important when you deal with the coverage and business development team who are going to be engaging with customers – if they have a different view of what kind of customers and what value we want to add, because we, as bankers, our interest is the success of entrepreneurs on a sustainable basis, and we believe we can achieve that. We are in a winning situation. So philosophically, on that point, we are aligned.

DUDU RAMELA: Sure.

ZWELI MANYATHI: That’s part of what made it attractive for us to engage.

DUDU RAMELA: Okay. So there are still some hurdles, though, to jump through. It’s subject to various regulatory approvals.

ZWELI MANYATHI: Absolutely. We will have to already begin to lodge our application with the Competition Commission, with the Prudential Authority that is [part of the South African Reserve Bank], the minister of finance must sign off, we must engage with the National Credit Regulator. So these are the conditions precedent that are in view, that we signed – so that’s the next step for us, to begin that process.

I just want to comment about how I think about that process. If I look at African Bank, African Bank plays right now in the consumer segment broadly and, when you look at Grindrod, you have a business bank. And so when you look at the two, they actually complement one another.

It’s not as though you are strengthening yourself unfavourably in one or the other segment. I think that the regulators will look at that favourably and I’m really hopeful that we will go through this process and complete it in a reasonable period.

DUDU RAMELA: I wanted for us to expand on that. So this could take, what, a couple of months, a couple of weeks?

ZWELI MANYATHI: Typically this will take months. It’s not weeks. Everything going well, I’ll be a happy man if we close up by the end of December.

DUDU RAMELA: Sure. Are you able to talk to us about the terms of the agreement?

ZWELI MANYATHI: Not exactly. I can talk to you about what we disclosed in the Sens. Beyond that I can’t talk to you about the terms of the deal.

DUDU RAMELA: Please do, in terms of what you disclosed.

ZWELI MANYATHI: What we disclosed was the price – R1.5 billion; and they had a NAV [net asset value] of R1.67 [billion]. We are comfortable that this is well-priced and, as you can imagine, before we put the final binding offer we had gone through a two-step process in our due diligence. We are very, very comfortable that we’ve been shown what we needed to have shown, and where we had concerns we found ways to deal with those concerns to the satisfaction of both parties.

DUDU RAMELA: Thank you very much for helping us make sense of that acquisition. Zwele Manyathi is group executive of business banking at African Bank.

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