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As Diamond preps bid, SA warns on ‘play’ for its banks

Sarb concerned that private equity firms may cause instability due to their need to create exit strategies.
Atlas Mara founder Bob Diamond

South Africa threw caution to Bob Diamond’s potential offer for Barclays Plc’s African unit, with the central bank signaling that a private-equity bid 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.

The comments come as Diamond pulls together a group of investors, including US private-equity giant Carlyle, to buy a stake in Barclays Africa that the London-based lender is exiting. The former Barclays chief executive officer seeks to combine his Atlas Mara with the Johannesburg-based lender.

Diamond, 64, who ran Barclays before his 2012 ouster during the Libor scandal, said on a conference call on April 26 that his 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 R300 billion ($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 Corporation, Africa’s biggest money manager, are planning to make an offer for 10% 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% of Barclays Africa among the R1.85 trillion ($125 billion) 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 ten 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 last month 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.

© 2016 Bloomberg 

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