Regulatory issues could affect HSBC's Nedbank acquisition
Technical issues could yet upset the planned deal between HSBC and Nedbank, with South Africa’s exchange controls proving particularly sticky, say some observers. Old Mutual South Africa, the company expected to receive the $8 billion paid by HSBC, has said that it intends to use some £1.5 billion of the money to pay down international debt. This would require it to export the funds, something not allowed by the country’s exchange control procedures.
Structures will need to be bypassed, says Emilio Pera, a partner at Ernst & Young. "There will have to be a compromise. The money should stay in South Africa but OM wants to repatriate the funds outside. OM has 80% of its revenue generated through OM South Africa, so it might use some of its funds to grow its capability inside South Africa, but how will it support the global operations? Sufficient funds will need to stay inside the country." Pera says that the government perceives the deal as losing control of one of the big four banks "and it will want to ensure that the payback to the country is sufficient". The scale of the domestic banking market commanded by the top-four banks – some 85% to 90% in terms of the retail market – raises inevitable issues of market dominance.