Global banks poised for Africa growth
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Global banks poised for Africa growth

International financial institutions finally seem to be making good on their promise to ramp up their commercial and, to a lesser extent, investment banking operations in the continent

A cocktail of pent-up demand for corporate financing, Sub-Saharan Africa’s macroeconomic outperformance and feeble credit demand in developed markets has triggered international banks to increase their commercial and investment banking presencein the continent during the past year.

International lenders, such as JPMorgan, are principally eyeing commercial banking products in local currency in growing markets, such as Nigeria, while Standard Chartered and Renaissance Capitalare beefing up their pan-African investment banking franchise to gain early-mover advantage once demand for sophisticated products and leverage kicks in during the coming years.

The developments represent a volte-face from the post-Lehman environment when fears grew that risk aversion, tighter financial regulation and soaring liquidity costs would force foreign institutions to pull out of the region. However, increasing demand – from a low base – among domestic corporates and multinationals operating in the continent for debt and equity products, as well as mergers and acquisition activity, have reinforced the allure of frontier markets in Africa from the perspective of global banks.

“We are definitely witnessing more competition between global banks operating in Africa – it’s good for Africa and for attaining its long-term objective to attract capital,” Stephen Priestley, Standard Chartered's co-head of Africa wholesale banking, tells Euromoney.

Stephen Priestley
Standard Chartered

There were 32 M&A deals worth $3.71 billion in Africa in the first quarter of this year, according to Mergermarket. Commodity-related activity accounted for the bulk of African M&A.

“We have seen large commodity firms, such as Vitol and Glencore, and the sovereign wealth funds actively and aggressively looking to purchase African assets at attractive valuations,” says Priestley.

However, multinationals are also capitalizing upon growing domestic consumption, such as Diageo’s successful $225m bid for Ethiopian state-owned brewer, Meta Abo, as part of the government’s privatization drive, which should see 50 companies listed by 2015, including agricultural, hotel and textile businesses.

Here’s a partial overview of relatively recent global banking developments:

• In November, JPMorgan began offering rand clearing services in South Africa. The bank is awaiting regulatory approval to offer naira-denominated commercial banking products and services, and is in the process of establishing representative offices in Kenya and Ghana – a precursor for offering local currency denominated services, says John Coulter, senior company officer for Sub-Saharan Africa at JPMorgan. “We have plans to ramp up and expand our commercial and corporate banking services across the world," he says. "Africa is part of these expansion efforts, since 80 of our top 100 multinational clients are doing business in Sub-Saharan Africa.”

• Credit Suisse set up a wholly owned subsidiary in South Africa in January, after the termination of its joint venture with Standard Bank.

• And in a practical and symbolic move, Barclays shifted its Africa headquarters from Dubai to London, while HSBC has set up in Nairobi.

• Renaissance Capital, meanwhile, has tapped senior bankers left, right and centre in Africa – despite outlining plans to downsize the group’s workforce elsewhere by 10% last year.

• Standard Chartered is waiting in the wings to deploy its balance sheet to finance a growing deal pipeline, while possibly beefing up its equities presence in the coming years, says Rahil Taneja, co-head of wholesale banking for Africa, and head of global markets for the continent. “We want to remain a market leader in the oil and gas and metals and mining sector, we want to dominate the trade and investment corridors and remain the undisputed leader in regional solutions,” he says. “Standard Chartered is well-capitalized and with very strong balance sheet footings, and we are adequately funded to use our own balance sheets to finance deals. To increase our presence in the cash equities and equity derivatives business, we would favour organic expansion over acquisition.”

Nevertheless, the macro-financial cycle is at an infant stage, with limited deal flow and illiquid secondary markets – factors that have moderated the pace of the expansion of the investment banking industry in recent years and complicated the bid by global portfolio managers to increase their exposures in the continent.

For an overview of the investment case for Africa, a survey of global investment banking activity in the region and the hurdles facing global investors, stay tuned for Euromoney Magazine's May issue.

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