A MONTH after Barclays announced its intention to sell its 62% stake in Barclays Africa (Absa), we know no more of how and to whom it plans to do this, other than speculation that the UK group may have hired JPMorgan Chase to advise it.
We do, however, know a lot more about the fate of Barclays Africa’s rival Nedbank, which for the first time in many years has certainty that it is not up for sale. This follows Old Mutual’s announcement earlier this month that it would implement a "managed separation" of its four underlying business units by the end of 2018, with further updates promised later this year on exactly how it will do this.
Of the four business units, we know perhaps the most about 54%-held Nedbank, with Old Mutual having made it clear it does not intend to sell any part of its shareholding to a new strategic investor. Old Mutual will retain a "strategic minority shareholding" that CEO Bruce Hemphill has said would probably be 15%-20%, and will distribute the rest.
But to whom will it distribute the shares? The issues involved in unbundling Nedbank provide some clues on what the shape and sequencing of the "managed separation" process might look like. In explaining the decision to break up Old Mutual, Hemphill has said that international investors tell him the group is "uninvestable" — because it’s neither a pure emerging markets play, nor a pure banking or insurance play.
The share register tends to reflect that — about 50% of Old Mutual’s shares are in South African hands, and of those that are not, a high proportion are owned by those whose only interest in Old Mutual is its inclusion in the FTSE 100 index. About 25% of the shares are held by index funds that track the index, or index "huggers" (funds that claim to be actively managed, but mainly just track indices). There are also institutional investors whose mandates limit them to UK-listed shares.
The trouble, then, is that if Old Mutual were simply to unbundle Nedbank shares to its shareholders, a large chunk of Nedbank would land up in the hands of investors unable to keep them. That could be a risk for the financial system more generally, not just for Nedbank itself. What may complicate matters a bit more is that Old Mutual’s Nedbank shares are held through its South African subsidiary, Old Mutual SA, anyway, so cannot simply be externalised to UK or US shareholders, given SA’s exchange control regulations.
The solution clearly has to be that Nedbank’s unbundling can happen only much later in the process, so the shares go to willing and able investors. That suggests that in broad terms, Old Mutual plc will have to shrink down to an entity focused on SA and emerging markets banking and insurance, with a primary listing in Johannesburg, before it starts dishing out Nedbank shares to its shareholders.
That means it will have to shed its unlisted UK wealth business and its listed US asset management business and cut its debt at the centre in London before a much smaller Old Mutual comes home. It could end up with a shape that looks very much like the Old Mutual Emerging Markets (Omem) business, with its life and wealth and asset management operations in SA and the rest of Africa, as well as in Asia and Latin America, plus a strategic stake in Nedbank.
The announcement says the separation could involve "equity market activity" for the two unlisted businesses, UK wealth management and Omem, and that could well signal a listing for the UK business, which has more than double the assets under management than Old Mutual has in SA, and is estimated by analysts to be worth anything from £3.5bn to more than £4.5bn. It has already attracted two bids, but a listing might be preferred, because that would raise some cash, while at the same time enabling Old Mutual to keep a sizeable stake that could be unbundled to shareholders. South African investors would surely jump at the chance.
Selling off Old Mutual’s 66% stake in the US business, which is worth about $1bn, would also raise cash that could be used to pay down debt.
The sequencing will clearly be crucial, as will consultation with investors, regulators in the various countries, and others. But regulators in SA have given the "managed separation" their blessing in principle, so they can’t be too concerned about risks such as unstable Nedbank shareholdings or capital outflows.
They have endorsed Barclays’ plans too, but it’s hard to believe they can be entirely comfortable about the uncertainty hanging over Absa. This is hardly a good time to put a South African bank on the market, and if Old Mutual’s failed efforts to sell Nedbank are anything to go by, buyers will be hard to find. But London-based Barclays has had so many CEOs lately that who knows — perhaps another will come along in a few years and decide the group isn’t a seller after all.
• Joffe is editor at large
Old Mutual. Picture: BLOOMBERG/SIMON DAWSON
A MONTH after Barclays announced its intention to sell its 62% stake in Barclays Africa (Absa), we know no more of how and to whom it plans to do this, other than speculation that the UK group may have hired JPMorgan Chase to advise it.
We do, however, know a lot more about the fate of Barclays Africa’s rival Nedbank, which for the first time in many years has certainty that it is not up for sale. This follows Old Mutual’s announcement earlier this month that it would implement a "managed separation" of its four underlying business units by the end of 2018, with further updates promised later this year on exactly how it will do this.
Of the four business units, we know perhaps the most about 54%-held Nedbank, with Old Mutual having made it clear it does not intend to sell any part of its shareholding to a new strategic investor. Old Mutual will retain a "strategic minority shareholding" that CEO Bruce Hemphill has said would probably be 15%-20%, and will distribute the rest.
But to whom will it distribute the shares? The issues involved in unbundling Nedbank provide some clues on what the shape and sequencing of the "managed separation" process might look like. In explaining the decision to break up Old Mutual, Hemphill has said that international investors tell him the group is "uninvestable" — because it’s neither a pure emerging markets play, nor a pure banking or insurance play.
The share register tends to reflect that — about 50% of Old Mutual’s shares are in South African hands, and of those that are not, a high proportion are owned by those whose only interest in Old Mutual is its inclusion in the FTSE 100 index. About 25% of the shares are held by index funds that track the index, or index "huggers" (funds that claim to be actively managed, but mainly just track indices). There are also institutional investors whose mandates limit them to UK-listed shares.
The trouble, then, is that if Old Mutual were simply to unbundle Nedbank shares to its shareholders, a large chunk of Nedbank would land up in the hands of investors unable to keep them. That could be a risk for the financial system more generally, not just for Nedbank itself. What may complicate matters a bit more is that Old Mutual’s Nedbank shares are held through its South African subsidiary, Old Mutual SA, anyway, so cannot simply be externalised to UK or US shareholders, given SA’s exchange control regulations.
The solution clearly has to be that Nedbank’s unbundling can happen only much later in the process, so the shares go to willing and able investors. That suggests that in broad terms, Old Mutual plc will have to shrink down to an entity focused on SA and emerging markets banking and insurance, with a primary listing in Johannesburg, before it starts dishing out Nedbank shares to its shareholders.
That means it will have to shed its unlisted UK wealth business and its listed US asset management business and cut its debt at the centre in London before a much smaller Old Mutual comes home. It could end up with a shape that looks very much like the Old Mutual Emerging Markets (Omem) business, with its life and wealth and asset management operations in SA and the rest of Africa, as well as in Asia and Latin America, plus a strategic stake in Nedbank.
The announcement says the separation could involve "equity market activity" for the two unlisted businesses, UK wealth management and Omem, and that could well signal a listing for the UK business, which has more than double the assets under management than Old Mutual has in SA, and is estimated by analysts to be worth anything from £3.5bn to more than £4.5bn. It has already attracted two bids, but a listing might be preferred, because that would raise some cash, while at the same time enabling Old Mutual to keep a sizeable stake that could be unbundled to shareholders. South African investors would surely jump at the chance.
Selling off Old Mutual’s 66% stake in the US business, which is worth about $1bn, would also raise cash that could be used to pay down debt.
The sequencing will clearly be crucial, as will consultation with investors, regulators in the various countries, and others. But regulators in SA have given the "managed separation" their blessing in principle, so they can’t be too concerned about risks such as unstable Nedbank shareholdings or capital outflows.
They have endorsed Barclays’ plans too, but it’s hard to believe they can be entirely comfortable about the uncertainty hanging over Absa. This is hardly a good time to put a South African bank on the market, and if Old Mutual’s failed efforts to sell Nedbank are anything to go by, buyers will be hard to find. But London-based Barclays has had so many CEOs lately that who knows — perhaps another will come along in a few years and decide the group isn’t a seller after all.
• Joffe is editor at large
Change: -0.47%
Change: -0.57%
Change: -1.76%
Change: -0.34%
Change: 0.02%
Data supplied by Profile Data
Change: -1.49%
Change: 0.08%
Change: -0.47%
Change: 0.00%
Change: -0.04%
Data supplied by Profile Data
Change: -0.27%
Change: -0.22%
Change: -0.23%
Change: -0.22%
Change: -0.23%
Data supplied by Profile Data
Change: -0.28%
Change: -1.15%
Change: -0.07%
Change: -1.21%
Change: -0.22%
Data supplied by Profile Data