African Bank targets listing as Reserve Bank looks to exit

Rothschild, Bank of America and Moshe Capital appointed as advisers on a two-phase process that will allow for ‘orderly exit’

African Bank is planning to list its shares as the SA Reserve Bank, which placed it under curatorship in 2014 after its predecessor almost collapsed, relinquishes its controlling stake.

The Bank, which owns 50% of the lender whose origins go back to 1975, has appointed Rothschild, Bank of America and Moshe Capital, to advise it on a planned two-phase process that will enable it and other shareholders to commence an “orderly exit”.

African Bank ’ s other shareholders include the Government Employees Pension Fund (GEPF), which holds 25%, and a banking consortium that holds an equal 25% through holdings by Firstrand (7%), Standard Bank (6%), Absa Trading and Investment (5%), Nedbank (4%), Investec (2%) and Capitec (1%).

“We as management, and the board, are fully supportive of an IPO [initial public offering] that will help get this bank to really have the opportunity to be a bank by the people for the people,” African Bank CEO Kennedy Bungane, who assumed his role in April, said in an investor presentation on Tuesday. “A bank with shareholders that are diverse and come from all over SA, touching on our key stakeholders, customers and potential partners.”

Bungane spoke shortly after the lender published its annual results, which showed it returned to profit in its 2021 fiscal year thanks to strong collections from defaulting borrowers and growth in retail deposits. African Bank reported profit after tax of R534m for the year to end-september rebounding from a R27m loss in the previous year.

The first phase of African Bank’s planned listing has already started; shortlisted bidders have been invited to submit non-binding offers to existing shareholders, a process that is expected to be completed by year-end.

In 2022, favoured offers will be allowed to convert their nonbinding offers into binding offers with the view that before end-june 2022, African Bank will be left with one or two “cornerstone investors”, though Bungane said it was unlikely any of them would have outright control of the bank.

“We are aware that there are three or four shortlisted bidders,” Bungane said separately in an interview. “From there, one or two would likely be selected” as cornerstone investors.

Those investors would then work with management on an IPO, allowing shareholders who want to exit to do so. Bungane wouldn’t give a date for the listing.

“It is pretty clear, as evidenced by what the governor [Lesetja Kganyago] said in parliament recently, that the Reserve Bank wants to resolve this matter as soon as possible ... given that they have something of a triple conflict here for being the largest shareholder, the regulator and the lender of last resort,” said Bungane.

“It can’t be easy for the other five banks. They’re also competitors. I’m sure they have better use for their capital and would be just as keen to exit.”

As for the GEPF, Bungane said African Bank favoured keeping it as an investor, but as an institutional investor it had to consider the level of shareholding it was able to give to any one stock. In the meantime, Bungane said African Bank plans to forge ahead with plans to grow its retail client base from about 1.25m customers to 3.5m by 2025. It also wants to expand the percentage of retail deposits from 61% of total deposits to at least 70% by 2025 to reduce its cost of funding.

The lender also plans to grow a fully-fledged business banking offering that will initially focus primarily on small to mediumsized businesses (SMES). That is likely to put it on a collision course with Capitec, which is also making an aggressive push into SME business banking after its buyout of Mercantile Bank in late 2019.

“This is something of a groundbreaking strategy to build a business bank starting with an SME offering,” said Bungane. “The strategy is new, its only just been adopted and my mandate is to execute on it as soon as possible.”

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