FNB could become a Chinese takeover target – but not any time soon
- RMB will transfer its 34% stake in FirstRand to shareholders.
- Without a dominate shareholder in FirstRand, the group becomes a likelier foreign takeover target.
- The local economy is currently so weak, this remains unlikely, investment experts say.
- But, eventually, a Chinese bank could be the likeliest suitor, one investment CEO says.
- For more stories, go to www.BusinessInsider.co.za.
This week, RMB Holdings announced that it will transfer its 34% stake in FirstRand directly to shareholders. RMB Holdings is the largest shareholder in FirstRand, which owns FNB, Wesbank and RMB.
The stake - worth around R130 billion – will soon be held directly by RMB Holdings shareholders. Remgro will also unbundle its 4% stake in FirstRand. RMB and Remgro believe this move will unlock value. Their stakes in FirstRand are currently undervalued by the market.
This has significant implications, among them that a takeover of FirstRand becomes more likely. Not having one major shareholder means that it becomes easier for another suitor to hoover up shares on the open market. It can build up a sizeable stake at cheaper prices rather than having to negotiate with a dominate shareholder.
“We would not expect anything to happen on this front in the short to medium term, but it remains a possibility,” Peter Armitage, CEO of the investment manager Anchor, told Business Insider South Africa.
“If viewed from a global perspective, we would not expect US banks to be interested. This leaves Asia and Europe/UK. European and UK banks are in a more defensive mode and the likes of Barclays have exited - not entered - the SA market. The most likely candidates would most likely be Chinese.”
In 2008, the Chinese bank ICBC bought a 20% stake in Standard Bank. It remains the only South African bank with a sizeable foreign holding. After taking control of Absa in 2005, the UK’s Barclays divested in recent years.
“Given the slow SA economic prospects we have some way to before GDP growth potential puts banks on a higher growth trajectory,” Armitage added.
Piet Viljoen, chair of asset manager RECM, believes any takeover of FirstRand is unlikely.
Bloomberg reports that M&A activity in South Africa slumped to the slowest level in 15 years last year.
The local market is limping along amid an extremely weak economy. Banking shares have come under additional pressure amid fears that Moody’s will “junk” South Africa.
The credit ratings of Standard Bank, Absa, Nedbank and FirstRand are all tied up to the rating of South Africa, where they make most of their profit. S&P downgraded seven local banks directly after it cut South Africa to junk. This means that banks have to offer higher interest rates when they borrow money.
By law, banks are also forced to hold government bonds, which would have hurt them in case of the expected bond sell-off following a Moody’s downgrade.
If Moody’s “junks” SA, investors across the world will be forced to sell billions of rands in South African government bonds. This is because SA government bonds are currently rated as “investment grade” and therefore included in the most important group of government bonds. The Citigroup’s World Government Bond Index doesn’t allow bonds that are junk.
FirstRand confirmed to Bloomberg that there is no deal in the pipeline.
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