When Barclays PLC divorced Barclays Africa
Barclays PLC is to disinvest its controlling interest in the Barclays Africa Group after four years of joining hands with ABSA Group to form one of the most respected financial institutions in the continent.
In what could best qualify for a divorce note, Barclays PLC, a UK-based financier, announced on February 23 that it had submitted an application to the central bank of South Africa – the South African Reserve Bank – for approval to reduce its shareholding in Barclays Africa Group to below 50 per cent.
The application, which also requires the approval of the Minister of Finance, includes the terms of the separation payments and transitional service arrangements, the Chief Executive Officer (CEO) of Barclays Africa, Ms Maria Ramos, said in a telephone call to journalists across the continent.
If approved, the Barclays Africa Group, with operations across the continent, will now be a stand-alone institution, separate from Barclays PLC.
Barclays PLC currently has 50.1 per cent in the African subsidiary but is hoping to reduce it to about 24 per cent, should the regulators approve.
Responding to the latest development, Ms Ramos said the Barclays Africa Group would remain focused on becoming a leading stand-alone pan-African financial institution.
Already, she said, the two institutions had agreed on the separation terms, which she said would help unlock opportunities for Barclays Africa as an independent pan-African bank.
“Separation has a number of implications for our business,” she said during the interview.
“It gives us the opportunity to unlock the potential to do things differently and build energy and momentum for our future as a pan-African organisation. We remain firmly focused on building a leading stand-alone pan-African financial institution,” the CEO added.
Terms of separation
On March 1, last year, UK-based Barclays PLC announced that it intended to sell the majority of its shareholding in Barclays Africa over a period of two to three years.
Since then, the two institutions have worked jointly to ensure the best outcome for all stakeholders. After the reduction of Barclays PLC’s shareholding, Barclays Africa will now be able to continue using the Barclays brand at its operations outside of South Africa for three years.
Barclays Africa will receive certain services from Barclays PLC on arms’ length basis for a transitional period, typically up to three years.
The agreement provides for contributions by Barclays PLC totaling £765 million primarily to fund the investments required for Barclays Africa Group to separate from Barclays PLC.
The breakdown includes £515 million for investments required in technology, rebranding and other separation projects; £55 million to cover separation-related expenses and £195 million to terminate the existing service level agreement between Barclays and ???BAGL???, relating to the rest of Africa operations acquired in 2013.
The expectation is that the financial contributions will neutralise the capital and cash flow impact of separation investments on the group over time.
Ms Ramos said an important feature of discussions was also the provision for a broad-based black economic empowerment scheme.
“While the full details are still under consideration, we are pleased to announce that Barclays PLC has agreed to contribute an amount equivalent to 1.5 per cent of Barclays Africa’s market capitalisation or Rand 2.1 billion (162.2 million) towards the establishment of such a scheme.
Financials for 2016
Barclays Africa Group reported a third consecutive year of earnings growth.
Its headline earnings increased by five per cent to Rand 14.9 billion (1.2 billion) in 2016, compared with 2015.
The growth was the outcome of efforts to contain costs and increase efficiencies in order to invest in delivering better services to customers.
Revenue also increased by eight per cent, outpacing the six per cent increase in the cost of running the business.
Outlook
Going forward, the CEO said; “We expect to see modest economic recovery with South Africa’s economy estimated to grow at one per cent.
“We expect 4.5 per cent average GDP growth in other markets. Moderate economic growth and regulatory changes will impact revenue growth.”
She added that the group did not expect some of its bad debts recorded last year to be repeated.
Barclays Africa, she said, would continue to invest for growth in Africa; and with a footprint in 12 markets, it is well positioned to benefit from economic growth.