Barclays Africa bid rough for Diamond

Former Barclays plc CEO Bob Diamond and his business partners could have a hard time laying their hands on a sought-after stake in Barclays Africa.

Not only does Diamond lack the deep pockets to pay at least R50-billion for the remaining 50.1% of the company after its parent Barclays plc offloaded 12.2% in a quickfire sale this week, his track record is patchy. Market experts recall his resignation amid a scandal that the bank manipulated interbank lending rates under his tenure.

An analyst, who declined to be named, said: "I don't think people would look favourably upon Bob Diamond being involved in Absa. His track record is horrendous. Look at the share price of Atlas Mara. I think he knows nothing about banking, retail banking especially."

Chris Steward, head of financials at Investec Asset Management, said of Diamond's participation: "It is an absolute minnow in the context of a 50% stake in Barclays Africa Group. They are going to need someone with very, very deep pockets to help them finance this transaction."

Atlas Mara's banking group was worth $300-million (about R4.4-billion).

Adriaan Cloete, an analyst at PSG Wealth, said: "I'm sure they'll look into what he [Diamond] has to say, but it will be difficult to do. Atlas Mara is a relatively small company."

He said Diamond's consortium was not necessarily interested in South Africa. But if it was to own 50%, other shareholders would not allow it to unbundle the South African operations.

"The current shareholders and future shareholders actually like Barclays Africa because of its African operations. So if he buys Barclays Africa, he has to buy the whole Barclays Africa," said Cloete.

The Barclays plc offer, through an accelerated bookbuild to selected institutional investors, opened on Wednesday evening. It attracted local and international investors who bought the shares at R126 each - a 6.5% discount on the previous day's share price close - raising R13.1-billion.

A Barclays spokesman said over 125 investors were interested and the top 25 were allocated 90% of the offering. Some received no allocation because of the big demand.

Institutional investors, including Old Mutual Equities and Allan Gray, who took up shares, refused to say how many.

The transaction was the largest bookbuild for several years in South Africa, according to Barclays Africa.

Without the Barclays brand, this turnaround could be hard to achieve, no matter who is involved

A company spokesperson said the demand was "high quality" from institutions in South Africa and globally and that the oversubscription showed it was the best approach to selling the 12.2% stake.

For the remaining stake Barclays plc intends to sell, the spokesperson said: "We are talking to a number of potential investors who have expressed initial interest."

Although it seemed the bookbuild this week had cut Diamond and his business partners out of the race, a source close to his bid, which is understood to be at a relatively early stage, said developments did not "rule them offside".

"It's completely unaffected," he said.

Diamond was in South Africa this week to drum up support for his consortium's bid. A spokesperson for Diamond said: "I can't comment on meetings they may or may not have had."

The consortium is led by Diamond's Atlas Merchant Capital, billionaire Ashish Thak-kar's Mara Group and US private equity firm Carlyle.

The source said the consortium would bring in other investors that could include insurers and sovereign wealth funds.

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"Suffice to say this is a permanent capital bid. Just because Carlyle is involved doesn't mean to say this is a typical private-equity bid."

Reserve Bank deputy governor Kuben Naidoo said this week that the bank would not accept a private-equity bid for any South African bank.

Diamond's spokesperson said the group would not respond to the Reserve Bank's comments.

Jihad Jhaveri, an investment analyst at Kagiso Asset Management that participated in the bookbuild, said the sale of the Barclays plc stake presented an opportunity to buy Barclays Africa at attractive prices. He said it also had "real tangible negative consequences for our assessment of Barclays Africa Group's fair value".

The main drawback is the potential loss of an IT advantage that Barclays Africa enjoyed as part of the Barclays group, such as cost savings, innovation and project-risk management.

The Africa franchise, although it had a low return on equity, had substantial growth potential, Jhaveri said. He added that a turnaround plan would rely on some quick wins, specifically operational improvements from its retail footprint.

"Without the Barclays brand, this turnaround could be hard to achieve, no matter who is involved," he said.

speckmana@sundaytimes.co.za