Economy
HSBC considers purchasing control of Nedbank |
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| Economy | |
| Written by Catherine Murray | |
| Monday, 23 August 2010 | |
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The London-based bank is in talks with Old Mutual to buy a controlling stake in South Africa's Nedbank, based in Johannesburg. HSBC Holdings Plc (LON:HSBA), one of Europe's largest banks is reportedly in talks with Anglo-African Old Mutual Plc (LON:OML), to buy a controlling share in the Nedbank Group Ltd, in a bid to benefit from growing business ties between Africa and Asia. The deal is valued at about $7 billion, and HSBC already has extensive operations in Asia. HSBC may acquire as much as 70 percent of the Johannesburg-based bank through a "a partial offer to all Nedbank Group shareholders," Old Mutual said today. HSBC and Old Mutual are both based in London and are are in exclusive talks on Nedbank, which has a market value of R71.5 billion ($9.8 billion). Nedbank is South Africa’s number four bank by market value. This would be HSBC’s first major takeover since the start of the global financial crisis should it go ahead. News of the potential takeover brought a welcome snap change to the Rand's strength. The South African currency's two-day decline in the wake of chaotic local public service strikes, reversed today and gained 0.2 percent to 9.2822 per euro and added 0.1 percent versus the pound to 11.3535. The currency appreciating as much as 0.6 percent to 7.2716 per dollar before trading 0.2 percent stronger at 7.3038 by 12:06 p.m. in Johannesburg, from a previous close of 7.3175. HSBC announced last month that it was looking to expand in Africa as more companies in Asia, where the bank gets more than half of its profit, trade with the continent, reports Bloomberg. The International Monetary Fund forecasts a positive 5 percent economic growth for Africa this year, following on from the awareness and economic boost the FIFA World Cup has brought to South Africa and the continent in general. South African analysts are generally positive about the prospects for the banking industry after the potential takeover, and "With 30 percent of exports destined for Asia, and China now its largest trading partner, South Africa’s prospects are brighter than ever,” HSBC spokesperson Paul Harris said. Chris Gilmour, a Johannesburg-based analyst at Absa Investments, commented in a Bloomberg report, "This is great for the local banking industry ... HSBC and Nedbank will be able to power their way into the rest of Africa, mainly concentrating on Chinese development deals involving multinational banks and companies." HSBC “will surely make a massive, concerted effort to flex its muscles on the continent," Gilmour said, if the bank succeeds in acquiring control of Nedbank, Old Mutual, the continent’s biggest insurer, is keen to sell Nedbank to concentrate on insurance and pay off its debt of as much as £1.5 billion. Nedbank accounted for 12 percent of Old Mutual’s revenue in 2009 and was the second-biggest earner for the group after the insurance business. Old Mutual would use some of the sale proceeds to boost operations in South Africa, said Chief Executive Officer Julian Roberts, adding that he hopes Nedbank and the insurer will keep close ties, reports Bloomberg. HSBC emerged ahead of Standard Chartered Plc as the favorite to purchase a controlling stake in Nedbank. London-based Standard Chartered, which gets three-quarters of its profit from Asia, was also considering a bid, Bloomberg reports. South Africa's banking regulator will look at various aspects of any planned deal to buy control of Nedbank and will be responsible for making a recommendation to the country's finance minister. Errol Kruger at the South African Reserve Bank told Dow Jones Newswires he has held preliminary discussions with HSBC and Old Mutual PLC in order to agree the statement the companies issued earlier in the day. "It is important to note that this is by no means a done deal," Kruger said, adding that HSBC has entered exclusive negotiations with Old Mutual. Kruger said that if HSBC goes ahead with a bid for control of Nedbank, he would look at issues including the financial health of the buyer, its strategy and what an acquisition would mean for the target company, industry and the country. Nedbank jumped as much as 7.4 percent in Johannesburg trading, the most since March, and was 6.8 percent higher at 139.99 rand by 1:07 p.m. Old Mutual advanced 4.6 percent to 126.3 pence in London, while HSBC gained 0.8 percent to 639.3 pence, Bloomberg reports. Nedbank traces its origins to the 1830s and provides banking services primarily to companies. The Johannesburg bank has a presence in 33 African countries, through an alliance with Ecobank Transnational Inc., which is listed in Nigeria and Ghana. Old Mutual has also come under fire in the past over their continued presence in Zimbabwe, which many feel shows an inadvertent support for the reign of terror Robert Mugabe and his ruling Zanu-PF party have unleashed on the country. |
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