HSBC in Talks with Old Mutual for 70% Stake in South Africa’s Nedbank

By David Dolan and | August 23, 2010

HSBC is in talks to buy up to 70 percent of South Africa’s Nedbank, in a potential $6.8 billion 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, which owns a controlling stake in Nedbank, said in separate statements on Monday they were in exclusive talks about the deal.

Old Mutual said HSBC could purchase up to 70 percent of South Africa’s fourth-largest bank, an acquisition that could be worth about 49.9 billion rand ($6.8 billion), given Nedbank’s current market value.

It was not immediately clear whether HSBC would get the necessary clearance from South Africa’s regulators to buy a stake in the bank. HSBC already has a presence in South Africa, offering commercial banking and offshore personal banking.

For HSBC, which has lagged behind rival Standard Chartered in Africa, the acquisition would bulk up its presence as more of its Chinese customers are looking to do deals on the resource-rich continent.

HSBC also faces a growing threat from South Africa’s Standard Bank, which is 20 percent owned by China’s Industrial and Commercial Bank of China, and is positioning itself as a gateway 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.”

South Africa’s head of bank regulation, Errol Kruger, told Reuters 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,” he said in a telephone interview.

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.

Old Mutual CEO Julian Roberts told Reuters that the group aimed to unload its entire 52 percent 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.

Media reports had previously said that Standard Chartered may bid for Nedbank. Roberts said Old Mutual had been in talks with other parties, but declined to elaborate further. He also declined to give information on the potential value of the deal.

A Standard Chartered spokesman in London declined to comment, but 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.

The sale would help Old Mutual in its strategic overhaul to slim down its complicated structure and pay down debt.

Nedbank, which said in a statement that HSBC was an attractive international banking partner, has been struggling with a money-losing retail unit.

The bank this month posted flat first-half earnings and said it would struggle to meet its medium-term forecasts.

Shares of Nedbank surged 6.7 percent to 139.90 rand in Johannesburg, while Old Mutual gained 4.1 percent in London.

HSBC was up 0.7 percent, while the rand firmed to 7.2930 against the dollar, from 7.32 before the news.

HSBC is being advised by Lazard, while Lexicon, Rothschild and Bank of America Merrill Lynch is advising Old Mutual. Credit Suisse Group is advising Nedbank.

(Additional reporting by Tiisetso Motsoeneng in JOHANNESBURG; Sudip Kar-Gupta and Quentin Webb in LONDON and Alison Leung in HONG KONG; Editing by Marius Bosch and Mark Potter)

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