Johannesburg - HSBC is in talks to buy up to 70% of South Africa's Nedbank Group [JSE:NED] in a potential $8bn deal that would give Europe's biggest lender a broader gateway to the fast-growing African continent.
HSBC and Anglo-South African insurer Old Mutual [JSE:OML], which owns a 52% stake in Nedbank, said in separate statements on Monday they were in exclusive talks.
HSBC will aim to buy up to 70% of South Africa's fourth-largest bank from Old Mutual and minority shareholders, worth about R49.9bn at Friday's close.
Analysts at Rand Merchant Bank and Keefe, Bruyette & Woods valued the stake at up to $8.4bn, assuming a premium of about 30%.
The treasury said in a statement that while it had not made any decision on the bid, it already considered Nedbank as "effectively owned" by a UK-based company, potentially removing a big regulatory hurdle to the deal.
HSBC has lagged rival Standard Chartered in Africa and a deal would bulk up its presence as more of its Asian customers look to do deals on the resource-rich continent.
It also faces a growing threat from Standard Bank Group [JSE:SBK], which is 20% owned by China's Industrial and Commercial Bank of China, and is positioning itself as a full-service corridor to Africa.
"This is the right thing for HSBC to do if it wants to focus on emerging markets," said Dominic Chan, an analyst at BNP Paribas in Hong Kong.
"Trade between Africa and China has been growing very rapidly, and HSBC doesn't have the same presence there as Standard Chartered, which makes this buy especially crucial if it wants to continue expanding there."
Shares of Nedbank and Old Mutual surged on the news, while HSBC edged higher. South Africa's rand rose slightly in early trade on Monday, helped by the news of the potential deal.
League table no-show
HSBC did not make the top 10 for investment banking or syndicated lending fees in sub-Saharan Africa in the first half of 2010, according to Thomson Reuters data. Standard Chartered was third in investment banking and top in syndicated lending.
South Africa's head of bank regulation, Errol Kruger, told Reuters early on Monday it was too early to comment on the deal: "They still have to submit all the applications they need to go through and then we'll need to apply our minds to it."
Kruger later told South African radio he saw the deal as swapping one foreign owner for another.
Old Mutual CEO Julian Roberts told Reuters the group aimed to unload its entire 52% stake in Nedbank but the exact amount it sells hinged on minority shareholders.
Nedbank would remain listed in South Africa and Roberts said Old Mutual would not have gone into exclusive talks without hope of regulatory approval.
"If we're left with a rump stake, that would be fine and we would manage that into the future," he said, adding the insurer planned to use £1.5bn from the sale to pay down debt, with the rest to be deployed in South Africa.
Media reports had previously said Standard Chartered might bid for Nedbank. Roberts said Old Mutual had been in talks with other parties, but declined to elaborate. He also declined to discuss the potential value of the deal.
A Standard Chartered spokesperson in London declined to comment. A source close to Standard Chartered said it had considered the Nedbank stake but was concerned about overpaying.
Nedbank currently trades at about 1.3 times its forward 12-month book value, versus 1.6 times for bigger rival Standard Bank and 1.3 for HSBC, according to Thomson Reuters StarMine.
BNP Paribas' Chan said he estimated 1.8 to 1.9 times the book value as a reasonable price for the deal.
Analysts at Keefe, Bruyette & Woods said a 30% premium on Friday's closing price would value Nedbank at 11.7 times 2011 forecast earnings. Standard Bank is currently trading at 10.7 times forward 12-month earnings, according to StarMine.
The sale would help Old Mutual in its strategic overhaul to slim down its complicated structure.
Nedbank, which said HSBC was an attractive international banking partner, has been struggling with a money-losing retail unit. This month it posted flat first-half earnings and said it would struggle to meet its medium-term forecasts.
"HSBC is the global No.1 banking brand, so I'm certain they would be able to help us," Nedbank's chief executive Mike Brown told Reuters Insider.