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FirstRand’s acquisition of UK-bank to help free up funding

Nov 16 2017 07:00
Lameez Omarjee

Johannesburg - FirstRand [JSE:FSR] plans to integrate its UK business segment into its acquisition of UK bank Aldemore Group, which will help free up funding needed to grow its South Africa and rest-of-Africa operations.

According to a note issued to shareholders on Wednesday, FirstRand’s £1.1bn (R20bn) acquisition of Aldemore is subject to court approval. The scheme is to come into effect on or before April 30, 2018 or at a later date agreed upon by both FirstRand and Aldemore.

Aldemore is a retail bank listed on the London Stock Exchange, which offers financial services to small and medium-sized businesses, homeowners, landlords and savers. As at September 30, its total assets amounted to £9.6bn (R181.91bn).

Shortly after the announcement, the share price gained 0.03% to trade at R52.62, before dropping as low as R52.36 by 14:45. The share price settled at R52.49 by 15:00.

FirstRand explained how the acquisition would affect the bank. Its business segment at the London-branch MotoNovo Finance will be integrated into Aldemore to form a separate pillar.

MotoNovo, a motor finance offering by FirstRand, contributed 4% or R727m of the bank’s total normalised earnings of R18.1bn for the financial year ended June 30, 2017.

“MotoNovo has historically been funded through a combination of securitisations, warehouse facilities and the bank’s balance sheet.

“Once integrated into Aldemore, MotoNovo will be supported by Aldemore's funding platform which is only utilised for UK lending books.”

New businesses by MotoNovo will be funded through Aldemore’s funding platform too. “MotoNovo's current loans will continue to be funded through existing funding mechanisms, but will be run down over time,” the bank said.

MotoNovo will eventually stop forming part of the bank’s operating activities as Aldemore will not be a subsidiary of FirstRand.

“The bank believes that the transaction would have the additional benefit of freeing up funding and liquidity capacity on the bank's balance sheet.”

These funds will instead be directed to the group’s South African and rest of Africa growth strategies.

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