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Barclays to begin Africa sale with 10% stake offer

File picture: Thomas Mukoya, Reuters

File picture: Thomas Mukoya, Reuters

Published Apr 8, 2016

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Johannesburg - Barclays was preparing to sell an initial 10 percent stake in its African unit to several large investors, while keeping the option to divest its entire holding, three people with knowledge of the process said.

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The British lender, which owns 62 percent of Barclays Africa Group could retain a controlling position and choose a single buyer, said the people, who asked not to be identified because the plans are private.

Read: Barclays Africa says buyers keen for parent's stake

If no bid for the entire stake emerges, the bank may conduct secondary market sales over two to three years to reduce its holding to less than 20 percent.

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Chief executive Jes Staley announced on March 1 that the bank was retreating from Africa with other measures to raise cash, shrink globally and lighten its capital burden.

No share rally

The moves have not rallied the shares, which trade at about 50 percent less than the bank’s book value, driven in part by his decision to slash the dividend in half for the next two years and Barclays warning that its investment bank will post a drop in earnings in the first quarter. Tom Hoskin, a spokesman for the company in London, declined to comment on the bank’s plans.

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The shares fell 2 percent to 146.75 pence at 3.31pm in London, extending the decline this year to 33 percent. That compares with a 22 percent loss for banks trading on the UK’s FTSE 350 index.

Johannesburg-based Barclays Africa has a market value of $7.4 billion, or R113bn, according to data compiled by Bloomberg. Its shares were 1.52 percent down at R130 at the close of the JSE yesterday.

A sale of 10 percent could potentially raise as much as $740 million for its parent company, which has the lowest capital level of any UK bank. Deconsolidating Africa and cutting the dividend will boost Barclays’s common equity Tier 1 ratio by at least 1 percentage point from its 11.4 percent level at the end of 2015, the bank estimates.

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Staley said in a March 10 interview that while he would like to maintain a stake in the African business, he would consider an offer for the bank’s entire holding. South African authorities had told Barclays they would prefer the business to be domestically owned, one of the people said.

‘Financial capability’

The second-largest owner of Barclays Africa is Public Investment Corporation, the biggest pension fund on the continent, which has a 5.3 percent stake.

Former Barclays chief executive Bob Diamond, who now runs private-equity firm Atlas Mara, has been reported to be among those interested in some or all of Barclays Africa. Staley has said he does not believe Diamond has the “financial capability” to buy the entire unit.

Even as the Africa division makes returns far in excess of the investment bank, capital rules require Barclays treat the stake as if it owns 100 percent, thus diluting its profitability. The Africa business reported a 17 percent return on equity last year on a stand-alone local-currency basis, which translated into an 8.7 percent return at group level, according to company filings.

Barclays bought South African bank Absa in 2005 and then built it up under former chief executives John Varley and Diamond, eventually acquiring its parent’s operations in eight African nations, giving Barclays a presence in 12 countries on the continent with 12 million customers.

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