Ecobank Transnational Incorporateds (ETI) five-year-old client-sharing service with Nedbank is touted by both sides as a resounding success.
Ecobank channels clients seeking exposure to southern Africa toward Nedbank, which returns the favour by guiding corporates seeking exposure to woolier sub-Saharan African markets in the direction of its partner.
|Nedbank CEO Mike Brown|
Some doubt the effectiveness of this arrangement. In a September 25 research report, Renaissance Capital analyst Adesoji Solanke warned that the two groups, despite a strong lending pipeline, still continue to operate separately.
The raw potential was huge but the practicalities of interlocking the operations of two such disparate African lenders would remain, the analyst added, a tough ask ... so long as Nedbank remains a minority holder in ETI.
This last point is telling. The next year will be crucial to the future of both lenders. A $285 million loan extended by Nedbank in 2010 to help ETI buy Oceanic Bank came with strings attached.
At some point before the end of November 2014, Nedbank has the option to convert that loan, thanks to two subscription agreements one at a fixed price, the other at a variable price into 20% of Ecobanks issued equity, turning it into the Togo lenders largest shareholder.
And Brown remains determined to pursue that agenda. He tells Euromoney in an interview: We havent formally decided when the decision will be made, but when the process is complete, we fully intend to exercise our subscription rights.
Some analysts believe Nedbank is ultimately destined to buy a controlling stake in ETI: one path to that end would involve it joining forces with South Africas Government Employees Pension Fund, or the Public Investment Corporation (PIC), which owns 18.16% of Ecobank.
Together, the two would control just shy of two-fifths of Ecobank, making a majority takeover, with the aid of a few disgruntled shareholders, all the more easy.
Its not, for instance, too hard to imagine the International Finance Corporation the private-sector arm of the World Bank, which owns just shy of 7% of ETI from selling some or all of its stake if the Togo lender fails to salve its new-found reputation for poor corporate governance.
For his part, Brown firmly rebuts any suggestion of a raid on Ecobank. Not a chance, he says. Our contractual agreement is to buy no more than 20% [of Ecobank]. We would never change that, and we cant buy any more.
He also dismisses speculation of a pincer attack with PIC, noting: Talk of an alliance with PIC, now or in the future, is nonsense, utter nonsense.
And there are good reasons for this phlegmatic resolve to remain two lenders rather than one. First, Ecobank also has a loose agreement, again connected to the 2010 Oceanic acquisition, allowing it to acquire up to one-fifth of Nedbank. Brown says: If they want to buy up to 20% [of us], we will endeavor to do our best to help them do that. We wouldnt stand in their way.
Second, Ecobank would be a tricky takeover target. Its likely undervalued the lack of a strong peer group of substantively sized regional lenders make a comparison hard, but ETIs price-to-book ratio is 0.71, while its shares, listed on the Nigerian Stock Exchange and trading at around 14 naira (8.8 US cents) have been range-bound between 10 and 20 naira for more than four years.
Yet any challenger would have to stump up more than mere money. Ecobank comes with a hidden cost: a presence in nearly three dozen African markets, some vast and industrialized, others overwhelming poor and rural.
There would be linguistic divisions to deal with, and headaches from operating across dozens of markets, each beholden to a different set of regulatory criteria, not to mention the probes by the Swiss business school IMD and Nigerias financial regulator. Ecobank chair Kolapo Lawson has gone, but his legacy is not forgotten.
However, even with a middling share price, this is a bank with potential aplenty, sprawled across dozens of rising African states, with a powerful presence in Ghana, Nigeria and potentially, via its alliance with Nedbank South Africa.
ETI might face a rocky few months ahead, though the management investigations are unlikely further to puncture its reputation: any additional damage is likely to be superficial, more of a flesh wound.