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Falling rand means Barclays to lose £400m on decade-long Absa investment

Feb 27 2016 15:14
Alec Hogg

Johannesburg - Barclays is poised to lose around £400m of the £3.8bn capital it invested over the past decade into South Africa’s leading retail bank, Absa.

Although the SA operation’s profit performance in local currency terms has been adequate, a continued slide in the value of the Rand means that in the currency that matters for the UK group, Pound Sterling, the value of the injected capital has fallen by 12%.

JUST IN: Barclays Africa evaluating options as UK bank prepares exit

Just over a decade ago, in May 2005, Barclays invested £2.6bn to acquire 56.4% of the Absa Group. This shareholding was raised to 62.3% in July 2013 when it accepted Absa shares in return for injecting £1.2bn worth of other African banking assets into the SA group, which was then renamed Barclays Africa.

This morning the Financial Times of London reported that the UK group is set to announce the divestment of its stake in Barclays Africa on Tuesday when it reports its 2015 financial results.

This has been on the cards since the financial shock created by Nenegate on December 9 last year.

At Friday’s closing level of the JSE-listed operation’s shares, the stake which Barclays owns translates into a recoupment of £3.4bn (R76bn) on the £3.8bn it paid for them over the past decade.

Although Barclays has received dividends during the period when it controlled Absa, those inflows would not have covered the costs incurred in servicing the invested capital.

Two days after Nenegate, BizNews reported that the UK’s largest retail bank Barclays had decided to offload its R120bn South African subsidiary Absa.

That marked a significant reversal in a strategy which has seen SA’s largest retail bank progressively change its image – with the Absa red and name progressively giving way to Barclays blue – including the listed company whose name was changed to Barclays Africa.

But according to the Financial Times of London, the new Barclays management team has gone through the motions over the past three months and is set to confirm the biggest disinvestment in South Africa since the spate that hit the country during the mid 1980s.

Sceptics are concerned that the Barclays sale will spark a similar exodus.

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absa  |  barclays  |  nene fired
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