Africa: Rabobank cuts reg risk in new venture
By Olivier Holmey
September 28, 2016
Regional stakes join FMO and Norfund assets; indirect, lower ownership reduces liability.
Rabobank has launched a new €660 million African banking joint venture, Arise, reaffirming its commitment to African banking and development.
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Berry Marttin,
Rabobank
In the new firm the Dutch mutual group will fuse its five minority stakes in African banks with two similar stakes held by Dutch development bank FMO, and six others owned by Norfund, an emerging market-focused state-run investment firm based in Oslo.
The company will grow to €1 billion over three to four years, says Deepak Malik, Norfund’s regional director, who will be CEO when Arise starts operations on January 1. One of Ghana’s top banks is already in negotiations to sell a stake to Arise, says Malik. Arise will seek new investments in west Africa, in particular.
The three parties and KPMG valued the existing holdings, in 10 banks spread across 20 countries, at €660 million.
These will be Arise’s initial assets, covering a large chunk of the biggest retail banks in east and southern Africa, notably Rabo’s stakes of 35% in National Microfinance Bank in Tanzania and 46% in Zanaco in Zambia. Norfund also owns 12% of Equity Bank in Kenya.
If, as envisaged, Portuguese mutual lender and Rabo’s Mozambique co-investor Montepio joins Arise, the venture will also have a large stake in Angola’s Finibanco.
But local staff are under no illusions about the challenges ahead. “Banks in Africa are looked upon by the regulators as risky business,” says Ineke Bussemaker, NMB’s CEO and a former Rabobank insider.
For FMO and Norfund, the venture constitutes a big new investment in African banking, involving several hundred million dollars in new capital deployment in the next three to four years.
“This is an excellent opportunity to enlarge our presence in Africa and participate in a platform that has scale,” says Jaap Reinking, financial institutions specialist at FMO.
For Rabo though, it may not constitute such a big new investment. FMO and Norfund will own 27% and 48% of Arise, respectively. Rabobank’s stake will be 25%. These proportions could decrease slightly, too, if Montepio joins. Yet Rabobank is only getting 25% as its partners will deploy more of the new cash, possibly partly by providing a higher proportion of the funding for new acquisitions, such as Ghana.
If existing stakes alone were counted, Rabobank would have about 45%, Norfund 30% and FMO 25%, says Reinking. Not coincidentally, as Bussemaker points out, 25% is the level that US regulations define as ownership of banks, and by extension liability, for any failures in areas like anti-money laundering. Rabobank, with banking operations in the US, must consider this more carefully than the other parties.
Reducing stakes
The aim is for Arise to hold minority stakes in banks with a bent for retail banking, SMEs, the unbanked and agriculture (the latter is one of Rabobank’s specialisms). It will gradually reduce stakes in some banks, where previous overlaps between the four parties bring it to a majority. Banks primarily focused on wealth and investment banking will not be part of the venture.
Rabobank will end up with a stake it feels more comfortable owning. There will even be a small positive impact to its profit and loss account from the transfers.
As such, the new venture looks less like Atlas Mara (Bob Diamond’s African bank investment vehicle). Instead, it is perhaps more in tune with Barclays’ decision in March to cut off its African business as CEO Jes Staley had similar concerns to Rabo over liabilities. His group’s 62% ownership of Barclays Africa meant it had to assume all the regulatory costs, while gaining only two thirds of the profit.
“We didn’t want to take the easy option of risk avoidance and just exit,” says Berry Marttin, Rabo’s board member responsible for the rural and international division. “Our reach is going to grow. We all know the constraints [of operating as an international bank in Africa] but the question is can you find a structure where you can move forward? That’s what we think we’ve found.”
Marttin says Rabo’s technical and managerial support for the various banks, such as sending trainees to the Netherlands, will continue, and spread to new lenders, while teaming up with similar assistance from FMO and Norfund. Arise is already recruiting a team of around 25 people, to be based in Cape Town, and at least one senior manager will come from Rabobank. The back office will be in the Netherlands.