Posted on Wednesday, 22 June 2016 13:33

Finance: Calling South Africa's big-game hunters

By Special correspondent

Photo©All Rights ReservedAs financial institutions Old Mutual and Barclays Africa are split and sold off, the titans of South African business are slowly disappearing.

The move by Old Mutual (OM) to break the company up into four separate units marks the end of an era for corporate South Africa and its heavyweight presence in the global economy.

The dramatic move by incoming OM chief executive Bruce Hemphill will turn a page on the insurer's 17-year failed experiment in global expansion and a return to its South African insurance roots – the emerging markets division – and planned reduction of its majority holding in South African bank Nedbank to a minority one.

It's about Europe and European banks and the way they mismanaged their affairs

Expectations are that London-based OM Wealth will be up for either a separate listing or sale to private-equity groups, while OM Asset Management will be separately listed. The OM Group listed in London in 1999 but it has had limited success with its global acquisitions. It lost hundreds of millions of dollars on a bad deal in the United States, an ill-fated merger with the European company Skandia and troubled attempts to make acquisitions in China and other countries in the Far East.

It looks as though hardline members of the governing African National Congress (ANC) will have more or less what they had sought decades ago: a South Africa-listed OM emerging markets division and Nedbank, probably with a majority black-empowered stake, with a headquarters and listing in Johannesburg.

When a former Anglo American chief executive, the late Gavin Relly, led captains of industry to meet the leaders of the ANC in Lusaka, Zambia in 1985, it had a far-reaching impact on business at home and abroad. The move laid the table for a negotiated settlement, which saw business endorse an ANC-led transition to democracy and a dispensation for leading corporates to seek primary listings abroad. Trade unions, elements of the ANC and some economists vehemently criticised the decision for allowing six major companies to flee.

That resentment has grown in the two decades since 1994. "We have been soft for too long," senior executives were told by a top ANC official last year. "We want to be able to deal with a South African headquarters in South Africa so that we can ensure that you pay taxes and so that we can put you in jail when you don't abide by the law," the official said.

The captains of industry argued back in the run-up to the 1994 democratic elections that they would be able to grow their companies by being closer to the capital markets and South Africa would eventually benefit from the reinvestment. They also said the country would reap rewards from having world-class national champions visible in the global economy.

The ANC and trade union critics argued that the country would suffer because of reduced taxes, fewer jobs and that the additional profits from the global reach would not be repatriated. The critics' fears have trumped the captains' promises.

Of the 'Big Six' who set up in London before the sluice gates came down and blocked any further applications, only Investec and Dimension Data remain intact – and they are both dual-listed.

Breaking up is hard to do

An ailing Anglo American took over De Beers, which delisted. SABMiller, the world's second- largest brewer, is being taken over by the Belgian AB InBev. BHP Billiton (formerly Gencor) has long since spun out of South Africa's orbit. Although Lonmin took its headquarters to London some years back, it has been all but decimated by strikes at its platinum mines. And now, OM is due to be broken up into its four component parts by the end of 2018, with likely sell-offs and winding-down of its London operation.

Adding to the sense of 'all change' is the decision in March by Barclays to reduce its majority 62% stake in Absa, South Africa's largest retail bank, to 20%. Barclays' decision to sell up in Africa is a response to the pressure it is facing to comply with tighter regulatory requirements to conserve capital.

There is not yet any clarity regarding a buyer, but there is strong interest from former Barclays chief executive Bob Diamond and his Atlas Mara group to acquire parts of Barclays Africa. There is also black empowerment interest in acquiring all or part of the 42% stake to be sold off by Barclays.

New outlook, same bank

The Barclays move is also highly symbolic of a changing of the corporate guard. Barclays, amid anti- apartheid protest in the United Kingdom and South Africa, was the last major British company to disinvest from apartheid South Africa in 1987, after having set up in 1969. Barclays returned to South Africa in 2005 when it bought a controlling interest in Absa, which was the bank of the apartheid government and has since become the bank of the ANC.

Finance minister Pravin Gordhan led a delegation of 30 South African chief executives and government officials to London and New York in March to show that South Africa was serious about its budget promises to cut government spending and prevent a downgrade to junk investment status by the three main rating agencies. Gordhan told reporters during his roadshow that Barclays' decision to sell was not about Africa but had more to do with past mistakes by European banks.

"It's about Europe and European banks and the way they mismanaged their affairs [...] and found themselves in difficulties in terms of capital requirements that the financial stability board established by the G20 and British authorities required of them for overseas operations," Gordhan said. ●


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