Barclays Africa Group Ltd. dropped the most in seven weeks on speculation the South African lender’s London-based parent will sell its 62.3 percent stake as part of a plan to exit the continent and focus on investment banking.
The shares had their biggest decline since Jan. 11 to lead losses among the 40 largest securities on the Johannesburg Stock Exchange on Monday. The decline came after the board of Barclays Plc released a statement late on Sunday saying it “continues to evaluate its strategic options” regarding its interest in Barclays Africa.
A review of the U.K. lender’s operations on the continent, where it has had a presence for more than a century, comes as South Africa’s economy struggles to avoid recession and President Jacob Zuma’s administration scurries to avoid a credit-rating downgrade to junk in the face of a currency that has lost more than half its value over the past five years against the British pound. South Africa, where consumers are under pressure amid rising interest rates and accelerating inflation, accounts for about 80 percent of Barclays Africa’s profit.
“We tend to consider ourselves and Africa as a paradise for investors –- I think it is the exact opposite,” said David Shapiro, a director at Johannesburg-based Sasfin Securities, a stock broker. The possible sale “has to do with poor growth prospects here” and the falling rand, he said.
The stock slid as much as 6.8 percent to 135.02 rand and was 4.5 percent down at 138.39 rand as of 12:39 p.m. in Johannesburg. That extended losses over the past 12 months to 28 percent, the biggest decline on the seven-member FTSE/JSE Africa Banks Indexafter Standard Bank Group Ltd., the largest African lender by assets.
Barclaysplans to exit its African business as part of an overhaul of the firm led by Chief Executive Officer Jes Staley, a person with knowledge of the discussions said last week. Staley will probably announce a company-wide review on Tuesday after the board agreed in principle that the African business was no longer a strategic fit, said the person, who asked not to be identified because the discussions are still private.
“With an independent board and a separate listing on the Johannesburg Stock Exchange, we are deeply rooted in Africa and remain firmly in control of our future,” Maria Ramos, chief executive officer of Barclays Africa, said in a statement on Monday. With more than 1 trillion rand ($62 billion) in assets and 12 million customers in 12 African countries, any announcement about the British bank’s shareholding won’t impact the ownership of the operations across the continent, she said.
The U.K. bank first bought a controlling stake in the South African lender in 2005as part of a strategy to find growth outside of its home market, where lending was slowing, and to consolidate its businesses across Africa. It was the biggest acquisition by Barclays outside of the U.K. at the time.
“We believe the Barclays Africa stake offers long-term ‘option value’ on both growth and capital flexibility,” Citigroup Inc. analysts including Andrew Coombs and Ronit Ghose said in a note on Monday. “We would prefer that Barclays retains its stake in Barclays Africa, with an aim to increase it over time.”
While Barclays Africa, formerly known as Absa Group, has historically been more profitable than the bank’s other three main divisions, it’s been hurt by the falling South African randwhen translated back into hard currency.
The National Treasury and South African Reserve Bank “may be annoyed with Barclays” should it sell the investment, said Garth Mackenzie, founder of Johannesburg-based TradersCorner.co.za, an independent trader. “To be honest I don’t think the local authorities are blameless here. They have after all driven the country to the edge of a cliff and a potential downgrade. I’m not sure Barclays were expecting that when they made their investment here.”
The Johannesburg-based stock offers “compelling value,” trading at eight times earnings and a dividend yield of 7 percent, said Adrian Cloete, a banks analyst at PSG Wealth, a Cape Town-based money manager with more than 300 billion rand in assets.
The British bank also owns operations in Egypt and Zimbabwe. It was going to sell those two units to the South Africa bank, but the deal fell through in December because of price.
If there is a sale, South Africa’s Public Investment Corp., which administers the bulk of government’s pension fund money, “will pick up a slice,” said Simon Brown, founder of JustOneLap, an investment and trading website. While there’s been speculation that former Barclays CEO Bob Diamond’s Atlas Mara Ltd. might be interested, the London-based company doesn’t have “anywhere near enough capital. So not many options, except maybe another Chinese bank.”