A consortium of black businessmen is making a bold move to acquire a majority stake in African Bank and return its ownership to black hands ahead of the bank’s planned listing next year.
African Bank Holdings is 50% owned by the Reserve Bank, with the Government Employees Pension Fund (GEPF) owning 25%. A consortium of five South African banks holds the other 25% on a pro-rata basis: Capitec (1%), Investec (2%), Nedbank (4%), Absa Trading and Investment (5%), Standard Bank (6%) and FirstRand (7%).
It was placed in curatorship by the Reserve Bank in 2014 after its former controlling shareholder African Bank Investments Ltd (Abil) posted a headline loss of R3.1bn as bad loans from years of risky lending piled up. Its performing loans and positive assets were separated and maintained in a “good bank”, while the central bank took over the non-performing book.
The businesspeople seeking to acquire the 50% stake owned by the Reserve Bank have formally set themselves up as the Sam Motsuenyane Consortium, in honour of the founder of African Bank who died in April aged 97.
From a size point of view, if it is pulled off, the transaction will be transformational if you look at all the elements that constitute broad-based [BEE]
— Kenny Setzin, chair of the Sam Motsuenyane Consortium
Kenny Setzin, chair of the Sam Motsuenyane Consortium, told Business Times they are aiming to pull off one of the largest black empowerment transactions through acquiring a stake in the bank.
He said the consortium was planning to establish an all-inclusive shareholder structure that would bring together members of black business lobby group Nafcoc, black investors, including prominent BEE groups, and women’s groups. He said the transaction would be ring-fenced as a special-purpose vehicle funded by a combination of equity and third-party debt.
“The consortium’s intention is to negotiate and acquire the Reserve Bank’s stake for a price that would create net value for all participants in the structure from the date of inception.”
Setzin said the consortium has been in talks with African Bank management on a range of matters, including the vision of the bank’s late founder to return ownership to black hands.
“From a size point of view, if it is pulled off, the transaction will be transformational if you look at all the elements that constitute broad-based [BEE]. It involves employees, customers and the black public at large, both business and community organisations and individuals. I do not think there is anything that broad-based within the financial services sector. It will be transformative,” he said.
African Bank CEO Kennedy Bungane said on Thursday after the group’s financial results presentation for the interim period to March 31 2023 that they had completed phase 1 of the initial public offering by offering 10% of the bank’s shareholding to its employees to kick off the journey towards going public.
He said the board’s approval for the creation of the iKamva Lethu employee share ownership scheme last month was the first phase of the IPO process.
“To have 10% of the bank’s shareholding in the hands of colleagues has boosted staff morale. It brings meaning to the adage that African Bank is a bank by the people. It has helped reduce the number of shares that we are going to float when we do the IPO. It will derisk the IPO in a significant way,” he said.
Bungane said the bank is now embarking on phase 2 of the IPO.
“Again, the objective is derisking the IPO by removing any BEE overhang and making sure that there is a probability of success in the IPO.”
He said long-term equity holders of the bank, including the Public Investment Corporation — Africa’s biggest fund manager — were positive about the phases.
“We have taken a clear decision to remove the BEE overhang on the IPO by ensuring that we do as much work as we can in 2024 to attract black ownership,” he said.
Bungane expects to inform the market of developments in due course.
African Bank is on a growth trajectory after returning to profitability during the six months ended March 31 2023. The bank generated R203m in net profit after tax, from a loss of R43m net profit in the same period a year earlier. The group’s credit impairment charges fell by 40% to R1.35bn as it is tightening its lending criteria.
The bank recorded a 38% jump in customer numbers to 5.7-million during the period under review.
Setzin said given the bank’s growth and the prospects of the financial services sector, there could be no better time to pursue an empowerment transaction than now. He said African Bank’s plan to list has given the consortium impetus, paving the way for its ambitions.
“African Bank has done an employee scheme, the missing leg is for them to do something with their African Bank customers — the balance would be with the public at large.”
He said the empowerment transaction should ideally take place before the listing.
“That is where you will be able to secure a value uplift. It cannot be post-listing because the shares will be freely available and you will not be able to compete with the big players like asset managers and foreign investors. I am hoping this will be the thinking with management.”
African Bank has done an employee scheme, the missing leg is for them to do something with their African Bank customers — the balance would be with the public at large
He said the intention is to get everybody to make an equity injection so that it is “not a free pass, so to speak”, and there is some level of risk capital on the table, subject to the size and funding model they can secure.
Wellie Modise, a board member of the Motsuenyane consortium, said while management is doing well in addressing the objectives for which African Bank was established, black control is the missing element.
“All that we are missing now is control. We need to enhance and complete the cycle of ownership by mobilising black people. The majority of them are clients of the bank. We are going all out now to mobilise across all sectors for black people to make a contribution to the consortium to build a block to say to the Reserve Bank, we are ready, we have money on the table,” Modise said.
In addition to the special purpose vehicle, the consortium is creating a bank account for interested people to deposit funds that will be pooled and used towards acquiring half of African Bank.
“We are going to appeal, and approach and persuade black groupings, organisations, churches political leaders of conscience to make a contribution to that account. We are going to appeal to all and sundry beginning with President Cyril Ramaphosa.”
Setzin said the consortium was sanctioned by the late Motsuenyane, who founded the bank in 1964.
He said Motsuenyane informed him in 2019 that he had been trying to set up a consortium in his name that could acquire a portion of the bank after the Bank indicated its intention to sell its 50% stake as it could not be both a referee and player.
In 2021 the Reserve Bank announced that a retail offer or broad-based ownership structure would be considered as part of the process. Setzin said the Motsuenyane Consortium was shortlisted; however, in the adjudication process, none of the shortlisted bidders were able to fulfil the Prudential Authority’s capital adequacy ratio requirements.
He said even after the Prudential Authority amended the requirements to 15% of the shareholding for the transaction, none of the parties met the requirements
“It was disappointing that regulation was a serious constraint in our bid.”
The Bank told Business Times on Friday that it had tasked the board of African Bank to oversee the IPO process, and any shareholding bids would be managed by the board.
Investec said: “Where necessary and applicable, any decision regarding our shareholding in African Bank would be communicated through the appropriate channels.”
FirstRand said it was prepared to sell its stake in the lender and retail bank, subject to its obligations in terms of the shareholder’s agreement. “The Bank would drive the process as the majority shareholder,” he said.
Other banks approached for comment had not responded at the time of going to print.
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