Stephen Gunnion
9 May 2005
Johannesburg — FINANCE Minister Trevor Manuel has given the green light for Barclays to proceed with a formal offer to buy a majority stake in Absa, in what analysts see as a prelude to a major shake-up of SA's banking sector.
Manuel's assent means that after eight months of intense negotiations with regulators and shareholders, the British bank is free to go ahead and make a formal offer to Absa's shareholders. The approval also paves the way for the largest single foreign direct investment in SA to date.
If it is accepted by shareholders, the transaction is expected to result in about R33bn flowing into the country, and also represents Barclays' largest acquisition outside the UK to date.
Announcing his approval of the deal yesterday, Manuel said allowing Barclays to buy Absa would not alter SA's policy of having four large banks. But it would open the way for foreign ownership in the sector.
"I think it is important that we deal with this on a case-by-case basis," Manuel said. "Theoretically it is possible to maintain the four pillars and for none of those to be South African owned."
However, in light of the banks crisis in Argentina three years ago, Manuel said it may not be "advisable" for all four large banks to be foreign owned.
Standard Chartered, which also negotiated with Absa, is now rumoured to be keen to buy a stake in First National Bank.
Although Manuel said the full conditions placed on the deal by his department could not be disclosed, in agreement with the banks, a statement from treasury said the majority of Absa's executive management team, including the CEO, would be South African citizens, Absa would remain a South African-incorporated company with its primary listing on the JSE Securities Exchange SA and the Reserve Bank would remain the lead regulatory authority over Absa.
However, the treasury said if Barclays bought a majority stake in Absa it had the potential to strengthen the South African banking system "by bringing substantial resources to bear in maintaining the sound financial position of Absa".
Registrar of banks Errol Kruger, who submitted his recommendation to Manuel in February, said there had been no difference of opinion between his department and treasury.
"I think it's fair to say that a very thorough process was followed and that the recommendation as has been conveyed to the applicants in essence is the recommendation that went through to the minister."
Treasury director-general Lesetja Kganyago said the large capital inflows that would result if the deal went ahead would be managed to prevent undue currency volatility.
"When you have an inflow of the magnitude we are talking about here it is very important for the monetary authorities to actually ensure that there are not negative impacts on the currency and foreign exchange markets," Kganyago said.
Reserve Bank deputy governor XP Guma said the money coming into SA as a result of the deal would reflect in the bank's statement of "other and gross reserves".
While it has been speculated that Manuel wanted the banks to have agreement from their shareholders before he would give his approval, he said he was unable to provide details, particularly on price.
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