Both Qatar National Bank (QNB) and Nedbank have increased their stakes in Ecobank in recent weeks, fuelling rumours that a takeover of the Togo-based lender is on the cards.
“I don’t think that QNB and Nedbank’s involvement in Ecobank is solely a portfolio investment,” says Brian Mugabe, head of Africa research at Imara Capital Holdings. "It’s a much longer-term play for both institutions, particularly Nedbank, which may look to increase its share in Ecobank. It will be interesting to see how this plays out."
However, Smit Crouse, managing executive, rest of Africa investments, alliances and strategy at Nedbank, firmly rejects any suggestion that the South African bank is looking to increase its investment.
“Nedbank has no plans to increase its shareholding in Ecobank Transnational Incorporated (ETI). We have always respected that ETI has been a independent pan-African organisation, and this is reflected in the organisation’s constitution. ETI's framework provides for a unique strategic advantage across the African continent, and for any institutional shareholder to go against this would not make any commercial sense,” he says.
“Any other organisations coming into the ETI fold should respect the same position,” he says.
On October 3, Nedbank – Africa’s fourth-largest bank by assets – established a 20% stake in pan-African banking group Ecobank via an option to convert $285 million of existing debt into equity that was agreed with ETI in 2011 when the South African lender issued a loan to ETI to help fund the acquisition of Nigeria’s Oceanic Bank. Nedbank bought additional Ecobank shares to take the stake to 20% at an overall cost of $493.4 million.
The conversion came just a few weeks after Asset Management Corporation of Nigeria (Amcon) sold its shares in ETI to Gulf lender QNB, taking QNB’s share in ETI up to 23.5%. Following Nedbank’s conversion, QNB’s stake in ETI has been diluted to around 19%.
“The QNB deal didn't have any impact on our decision and timing. It was a secondary market transaction. It didn't really come as a surprise, given the general market view that Amcon was not a long-term holder of its ETI shares and were going to sell at some point – although it may not have been clear who the buyer was going to be,” says Crouse.
|Smit Crouse, Nedbank|
As Miguel Azevedo, head of investment banking at Citi, says: “It doesn't make sense for QNB and Nedbank to fight over a controlling stake in ETI. I don’t think it’s any more than a conspiracy theory. But now there are three fairly large shareholders in the bank [QNB, Nedbank and South Africa’s Public Investment Corporation], I think they will end up balancing one another out. This is great for the bank as it offers stability and has raised levels of tier-1 capital in the bank.”
Deepening the alliance
Under the terms of the conversion of its debt to equity, Graham Dempster, Nedbank's COO, will take up a position on ETI’s board.
“This is a reciprocal, contractual right, and not by virtue of our shareholding in ETI. ETI has the right to nominate someone to our board and I assume that they will do so – but all such appointments are subject to regulatory approvals. Bringing someone from ETI to our board will be beneficial, giving us more local knowledge and expertise of the continent," says Crouse.
Ecobank and Nedbank formed an alliance in 2008 and have a combined network of 2,000 branches in 39 countries. Before the alliance, Nedbank was unable to serve its clients outside South Africa, and rather than organically grow its branch network beyond South Africa or acquire banks in the region, the bank decided to form an alliance with Ecobank.
“The rationale for establishing the Ecobank Nedbank strategic alliance in 2008 was for Nedbank to provide for an accelerated strategy that would immediately provide access to the faster growing markets across the continent to its clients in South Africa wanting to expand their businesses. We didn’t want to play catch up through acquisitions – in 2008, price multiples for good financial institutions outside of South Africa in places we were looking to grow our business were too high. The strategy adopted provided for a risk-mitigated and capital-efficient approach," says Crouse.
"Getting to this point of making the investment has taken some time, but our unique approach and structuring of the over six-year relationship and investment in this instance has paid off," he says.
Nedbank's decision to increase its stake in Ecobank to 20% was taken despite corporate governance issues that have rattled the pan-African lender over the last 12 months.
“Over the last year, although we didn’t have a member of our bank on the board, we have stayed close to management and monitored how they have dealt with the reported challenges that arose,” says Crouse.
“If they hadn’t worked in a manner that provided comfort to shareholders and potential shareholders, it could have influenced our investment decision. But overall, we found comfort in the board’s approach and management execution,” he adds.