Barclays Hits Target for Africa Stake on Surprise Sale Boost

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Barclays Plc reached a long-term target for shrinking its stake in its African unit earlier than expected as the bank boosted the size of a share sale by more than 50 percent.

The London-based lender is selling 285.7 million shares of Barclays Africa Group Ltd., equal to a 33.7 percent stake, at 132 rand each, it said in a statement on Thursday. The bank previously planned to sell a 22 percent stake and said it increased the size of the offering “due to strong investor demand.”

The sale will raise about 37.7 billion rand ($2.9 billion) and is part of plans by Chief Executive Officer Jes Staley, 60, to reduce the lender’s presence on the continent in favor of supporting a trimmed-down investment bank focused on London and New York. The British bank, which has had a presence on the continent for more than 100 years, first bought a controlling stake in the Johannesburg-based lender in 2005 when it was still called Absa Group Ltd.

The placement accelerates Barclays’s plan to gradually sell down its stake and deconsolidate the unit from its accounts, releasing capital that can be invested elsewhere in the business. Barclays had initially paid $5.4 billion to gain control of the company, increasing it to more than 62 percent in 2013 as part of a reshuffle that saw Absa take over Barclays’s operations in eight African countries.

JPMorgan Chase & Co. analysts led by Raul Sinha upgraded their rating on Barclays shares to overweight following the larger sale, saying it narrowed the firm’s gap to peers on capital ratios and could provide the ability to boost dividends.

Shares Fall

Barclays shares dropped 0.7 percent to 208.60 pence at 10:56 a.m. in London, reversing an earlier gain of as much as 2.1 percent. The South African securities are being sold at an almost 10 percent discount to Barclays Africa’s closing price on Tuesday. Barclays Africa rose 3.6 percent to 144.02 rand in Johannesburg after tumbling 4.8 percent on Wednesday.

Public Investment Corp., South Africa’s largest money manager, will buy a 7 percent stake in Barclays Africa as part of the sale once it has obtained regulatory approvals, the Johannesburg-based lender said in an emailed statement. That will help cut the share held by Barclays, which currently owns 50.1 percent, to 16.4 percent.

The British lender’s stake will drop to 15 percent — reaching its target level and allowing the bank to deconsolidate the unit from its capital calculations — after the completion of a transaction aimed at boosting the participation of black investors in Barclays Africa, it said.

The stake held by PIC, which manages pensions on behalf of government employees, will increase to the 14.9 percent limit after the transaction, Barclays Africa CEO Maria Ramos told reporters in Johannesburg on Thursday. PIC won’t be given a position on the board and Barclays Africa doesn’t expect it to try and exert any influence that’s out of the ordinary for a significant shareholder, she said.

Bank Criticism

“There are examples of the PIC being used as a facilitator to further government objectives,” Henry Hall, an analyst at HSBC Holdings Plc in Johannesburg, said in a note, citing the prevention of job losses at platinum producer Lonmin Plc and the merger of cement producer PPC Ltd. and Afrisam (Pty) Ltd.

The second sale follows the disposal of a 12.2 percent stake to fund managers in South Africa and abroad in May 2016. The latest phase was said to have been delayed after South African President Jacob Zuma fired Finance Minister Pravin Gordhan at the end of March, replacing him with Malusi Gigaba. Gordhan had given provisional approval to a separation agreement that involved the U.K. lender paying its subsidiary 765 million pounds ($987 million).

Capital Boost

Deconsolidating Barclays Africa and including the proceeds from the sale will boost Barclays’s common equity Tier 1 ratio, the key measure of capital strength, by at least 0.73 percentage point, the lender said.

The share placement is being coordinated by Barclays itself, aided by Citigroup Inc., Deutsche Bank AG and UBS Group AG, according to the statement. Barclays can’t sell any more Barclays Africa stock for 90 days after the latest placement is settled, a provision known as a lock-up restriction.

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