South Africa's banking regulators would like shareholders of big banking groups to be stable and committed to the country - and have deep pockets. That was the word this week from Reserve Bank deputy governor Kuben Naidoo, who re-iterated that the bank was reluctant to see private equity shareholders buy significant stakes in South Africa's banks."In general the Reserve Bank would prefer not to have private equity or highly leveraged shareholders in a bank because they introduce a degree of instability into the bank and into the banking system," said Naidoo, whose portfolio includes oversight of the bank supervision department.He emphasised that he was speaking about banks in general and not about any particular bank. But the regulator's views are going to be crucial for Barclays Africa (Absa) - the shape of any deal, or deals, done in the sale of its UK parent Barclays plc's controlling stake in Barclays Africa will hinge on what the local regulators, and their UK counterparts, will agree to.mini_story_image_hleft1The stake that's up for sale has fallen to 50.1%, after Barclays plc sold 12.2% to institutional investors on May 5 through a book-build process (like an auction). This raised about R13-billion for the UK group in what CEO Jes Staley described as "an important first step as we seek to reduce our shareholding ... to a level that achieves accounting and regulatory deconsolidation".The group reported "healthy appetite" for the shares and investors clearly would have been willing to buy many more had they been on offer. But Barclays is not allowed to sell more than it did without the permission of Finance Minister Pravin Gordhan.The agreement between the UK and South African regulators when Barclays bought into Absa in 2006 requires the minister of finance's approval for any disposal that takes its holding below the 50% plus one mark that represents control.That is more stringent than the overall requirement that the Reserve Bank has to approve the sale of "significant stakes" of more than 15% in any bank - and it suggests policy decisions are yet to be made on the kind of new shareholder, or shareholders, South Africa's regulators want to see at Barclays Africa.The big question is whether the 50.1% will go to one bidder - or be parcelled out, with Barclays plc possibly holding on to a stake below 20%. This would enable it to deconsolidate, but the stake would still be significant and allow for the UK and South African groups to work together to provide banking services in the rest of Africa.Barclays Africa chairwoman Wendy Lucas-Bull said last week that there would be synergies in corporate and investment banking in particular for Barclays Africa to service the UK group's clients on the continent.block_quotes_start South African regulators will have to conduct careful "fit and proper" tests on anyone seeking to buy more than 15% block_quotes_endOne bidder that has made it clear it wants to buy control of Barclays Africa is the consortium of former Barclays CEO Bob Diamond's Atlas Merchant Capital, Ashish Thakkar's Mara Group and private equity giant Carlyle. Diamond and Thakkar have confirmed their interest, and their grouping is said to be looking to include a significant black empowerment stake in its bid, along with an employee share ownership scheme that would benefit all Barclays Africa staff.They are clearly keen to shake up the group, rather than just being minority shareholders, and their joint venture African financial services group Atlas Mara could combine its banking operations with those of the consortium.In response to questions on having the cash, Diamond and Thakkar have emphasised that the consortium is fully funded - and it is permanent long-term capital, not the private equity sort the Reserve Bank is concerned about.They will be competing with others that reportedly include the Dubai-based Abraaj Group, which is leading a group of investors that plan to bid for up to 35% of Barclays Africa. Also reportedly interested is African Rainbow Capital, the empowerment financial services group established recently by Patrice Motsepe and former Sanlam CEO Johan van Zyl.story_article_right1The Public Investment Corporation has also made it clear it is keen to increase its stake in Barclays Africa: it took the largest chunk of the book-build, about 1.2%, but that still gives it not much more than 7%.Citing unnamed "people with knowledge of the matter", Bloomberg reported this week that Barclays plc is leaning towards more sales to money managers - fast, controlled offerings with little to no marketing - after the book-build drew strong demand. "Selling to a single buyer may face significant regulatory hurdles," Bloomberg's sources said.There will be regulatory hurdles either way and on both sides. South African regulators will have to conduct careful "fit and proper" tests on anyone seeking to buy more than 15%. They will no doubt be looking at whether they want a new foreign controlling shareholder or rather a series of smaller ones.They may also be looking at foreign exchange flows - any sale of UK-based Barclays shares to local South African shareholders means money flows out of South Africa to the UK, and the remaining 50.1% is worth R50-billion to R60-billion.At the same time, the UK's Prudential Regulatory Authority (PRA) will have to endorse whatever deal is done as good enough to allow Barclays plc to "deconsolidate". The benchmark is 20% and Barclays has said it will go below that, but there is little precedent that can be followed and the PRA could impose extra requirements...