FT: Bob Diamond secures backing for Atlas Mara stake sale

[dr.malone]

More than 90% of investors vote in favour of Fairfax deal despite dilution

 

 

Bob Diamond, co-founder of Atlas Mara, on Friday welcomed the strong backing from investors to sell more than a third of the African banking investment vehicle to Canada’s Fairfax Financial.

 

“This means we have secured a $200m capital injection to invest in sub-Saharan Africa. I feel terrific,” Mr Diamond told the Financial Times. “This is a very strong partner, which has resounding support from shareholders.”

 

He made his comments after more than 90 per cent of investors voted in favour of the sale.

 

The deal, which will partly fund Atlas Mara’s investment in a Nigerian bank, leaves existing investors in the London-listed vehicle facing painful dilution, including Janus Capital, Wellington Management, Guggenheim and Mr Diamond himself.

 

However, the former Barclays’ chief executive — nicknamed “Bobtimistic” by former colleagues — remained resolutely upbeat, saying: “Investors are pretty excited. We are now able to get to the next stage of our Nigerian investment at a very low price.”

 

Atlas Mara will use some of the money to increase its holding in Union Bank of Nigeria. It plans to buy an indirect 13.4 per cent shareholding in UBN, taking its combined direct and indirect holdings in the Lagos-based bank to 44.5 per cent.

 

UBN plans to raise capital via a share issue later this year, which could allow Atlas Mara to increase its stake above 50 per cent. Taking control of UBN’s N1.3tn ($4bn) of assets would more than double Atlas Mara’s $2.7bn balance sheet.

 

 

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https://www.ft.com/content/12f0f24c-68b2-11e7-9a66-93fb352ba1fe?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev&yptr=yahoo

 

Mr Diamond said it was a “great time” to buy a mid-sized Nigerian bank even though the country has been hit by its worst economic slowdown since 1991 after the collapse in oil prices in mid-2014 sparked a fiscal crisis.

 

“We are going to get in to one of Nigeria’s best banks with the total stake having cost less than 50 per cent of book value,” he said, adding that there were “green shoots” in Nigeria, citing a recent uptick in oil production and an oversubscribed sovereign bond issue.

 

“I think we will look back in a few years and say: ‘Can you believe we were able to get a majority stake in a major Nigerian bank for anything less than book value, never mind a significant discount’,” said Mr Diamond, who plans to visit Nigeria after the summer.

 

Atlas Mara, which has suffered an 80 per cent fall in its share price since its 2013 listing, plans to raise $100m through an offering of new shares, and a further $100m through the issuance of a mandatory convertible bond to Fairfax.

 

Fairfax, which is run by Canadian investor Prem Watsa, will also have the right to secure a minimum of 30 per cent of the share offering, and will subscribe for any stock not taken up by existing shareholders.

 

[nwoodman]

A most pleasing development

 

"The Board expects profit after tax for the year to significantly exceed the current market expectations and guidance previously stating that "we are targeting reported earnings for 2017 to be more than double the level achieved in 2016" of $8.4 million. Profit after tax of around $40 million, with projected earnings per share of $0.35."

 

https://finance.yahoo.com/news/atlas-mara-limited-atma-trading-133300605.html

[petec]

Very interesting. I would love to know whether Fairfax have had much impact on how this is managed. The FAH letter implies they are deeply involved.

[nwoodman]

Richie Boucher (ex BoI) was granted a seat on the board late last year (October 2017), probably early days for him to make a big difference.  However going forwards I believe his involvement as well as the rest of the Fairfax team could be transformational.     

[petec]

Richie Boucher (ex BoI) was granted a seat on the board late last year (October 2017), probably early days for him to make a big difference.  However going forwards I believe his involvement as well as the rest of the Fairfax team could be transformational.   

 

Agreed, but I was struck by the tone in the FAH letter - there seemed to be a lot of "we" in the discussions of what Atlas are doing, rather than "they". That could just be down to their way of writing or it could imply that there is a lot of involvement.

[nwoodman]

A couple of aricles/transcripts on Atlas Mara's new CEO, John Staley (from when he was at Equity Bank).

 

The future of banking in Africa lies with banks, not fintech

 

During a panel discussion today at the annual AfricaCom event in Cape Town, Staley said, “In the future, banking in Africa will be done by banks.”

He argued that most fintech companies are focusing on unsustainable business models based on payments and loans.

“Payments to me is a race to zero. We are fast heading to zero [transaction costs]… Amazon wants to sell goods, but they want to do the payment for free. Google wants to get money from marketing, but they want to do the payment for free.”

 

https://www.howwemadeitinafrica.com/future-banking-africa-lies-banks-not-fintech/56695/

 

John Staley: Keynote Address - Insights on How the Poor Spend Money

 

Where do I think this whole thing is going, and where do we as a bank think this whole thing is going and what have we done? You all know, drive around Kenya you see a lot of Equity bank agents. It's been a huge success. We're doing over 70% of all of our cash in and cash out transactions at banking agents. Do you know what our average cash in and cash out is at our banking agents? Average withdrawal is about KShs. 6,000. Average deposit is about KShs. 8,000. Do you think we're reaching the poor who are spending KShs. 8,000 in a whole month? We're not - we're tapping the top-end. That money is moving and that's the money we're tapping, we're not getting to the bottom end of the market, and we are doing the best, go and have a look. When we started off, there were only MPESA agents. Go and have a look … if you have an M-PESA agent, and our agents are more cash flow positive than M-PESA agents so we need less. So we have done a great job.

 

We realized it was all about communication, so we roll out an MVNO, it's the fastest growing MVNO (Mobile Virtual Network Operator) in the world. But we're operating in an environment where Safaricom controls 92% of revenue. In most jurisdictions in the world if a Telco gets to 25% there is a problem. Safaricom controls 92% so I better not say anymore than that because I'll get into trouble but we have a problem in this country. Why did a bank have to become a Telco? Because we needed affordable access to a channel. We needed affordable access to USSD, which is the channel that poor people use. In Kenya, we've got banking apps. Most of you sitting in this room will have a banking app from NIC, Equity or somebody. You know what, 90% of all of our transactions still happen on the USSD channel, you know *247* whatever, that's how our transactions happen, because poor people don't have smartphones.

 

http://asintl.org/John-Staley-Transcript.pdf

 

Are Banks the Future of Banking? Africa Board Fellows Deliberate

 

The chief officer of finance, innovation and payments at Equity Bank in Kenya, John Staley, strongly stands in favor of banks. He recently argued that banks are in it for the long-term and that fintech companies will come and go – or get absorbed by the banking industry.

 

Where does Staley’s confidence come from? He points to business models and access to capital. According to Staley, payments services are not a sustainable business model. He believes the race to eliminate fees from payments that is taking place among large players will drive out any profitability for the small-scale fintech enterprises whose profit streams rely on them. He envisions more and more banks and larger companies like Google and Amazon eliminating transaction costs for customers altogether, creating a general unwillingness among customers to pay fees. Secondly, successful loan schemes require large sums of money for the long-term. John questions fintech companies’ abilities to maintain the required amount of liquidity for their loan portfolios.

 

With John’s views as a backdrop, we wanted to know what other players think about this critical, even existential, question. We asked our alumni and current fellows of the Africa Board Fellowship program, a group of banking professionals across Africa with more than a century of cumulative banking experience, to answer the question: Are banks the future of banking?

 

The shortage of support for Mr. Staley’s convictions was surprising. The fellows poked holes in his view using specific examples of policy or innovations that undermine his two main arguments.

 

https://cfi-blog.org/2017/02/01/are-banks-the-future-of-banking-africa-board-fellows-deliberate/

 

 

Staley sounds highly competent and in tune with his market.  Africa has plenty of challenges but I can see why patient investors such as Fairfax would find this appealing.  From the Fairfax Africa Q1 presentation

 

• Sub-Saharan African financial services group founded and listed on the London Stock Exchange in 2013
  
• Provides commercial banking, markets and treasury, and FinTech solutions
  for corporate and retail clients
  
• Broad footprint: Operates and controls banks in six countries (Botswana,
  Mozambique, Rwanda, Tanzania, Zambia and Zimbabwe), plus 48% noncontrol
  position in Nigeria, Africa’s largest banking market outside South Africa
   
  
• Deep value opportunity
  
• Diversified footprint in attractive banking markets
  
• Long-term vision of creating pan-African financial services platform
  
• High growth potential in African financial services sector broadly
  
• Entry point into attractive high-growth Nigerian market
  

 

[/img]

 

https://s21.q4cdn.com/604175076/files/doc_presentations/2018/05/2018-Fairfax-Africa-AGM.PDF

 

 

 

[wondering]

Thanks for posting.  I wasn't able to the FAH AGM.  This helps.

[ValueMaven]

Welcome to the land of FFH...

 

I cant believe we are investing in a Nigeria bank...

 

I've said this for the past 2 years - but FFH really needs to focus on underwriting improvements and needs to really focus on Allied...this stage of the company's life operational improvements and efficiencies are critical

 

These type of deals to me at least seem very distracting for management...start adding some North American real assets to generate consistent cash flow to offset some of the underwriting volatility that our global insurance business gives us...

[cwericb]

Fairfax boosts holdings in Fairfax Africa in sub voting shares to 20%

 

Jun. 19, 2018 8:56 AM ET

 

Fairfax Financial Holdings (OTCPK:FRFHF) boosts holdings in Fairfax Africa's (OTCPK:FFXXF) subordinate voting shares to 20.1% from 12.5%.

 

Fairfax Financial acquired 4.1M of Fairfax Africa's sub voting shares at US$12.25 per share through Fairfax Africa's previously announced bought deal public offering. The aggregate purchase price is US$50.2M.

 

Fairfax's total holdings increase to 6.6M Fairfax Africa sub voting shares from 2.5M.

 

Fairfax’s aggregate ownership, control and direction of the subordinate voting shares and multiple voting shares after the offering represents an about 58.2% equity interest and an approximate 98.3% voting interest in Fairfax Africa.