African Bank has bought Grindrod Bank to deliver on its strategy of accelerating its entry into SA’s increasingly competitive business banking market.
The R1.5bn deal announced on Thursday will see African Bank acquire 100% of Grindrod Bank from JSE-listed Grindrod Ltd, the diversified freight logistics group, which has operations across Southern and East Africa, Thailand, Indonesia, Australia, Papua New Guinea and the United Arab Emirates.
Grindrod Bank, which was established as a boutique merchant bank in 1994 and received its licence two years later, has had several suitors over the years.
Ambitions
“Our acquisition of Grindrod Bank enables us to further realise our business banking aspirations and advance our ambitions in this respect in acquiring valuable sectoral expertise and an existing customer base,” said Kennedy Bungane, African Bank’s CEO.
“We announced earlier this year the formation of our business banking division as part of a strategy to diversify and develop a fully fledged middle-of-the-pyramid business banking offering. This acquisition allows us to do that efficiently and rapidly, and we look forward to incorporating Grindrod Bank into our stable.”
The deal is expected to take several months to finalise and remains subject to various approvals from regulators including the Prudential Authority (PA), the National Credit Regulator, the competition authorities and finance minister Enoch Godongwana.
The transaction comes at a time when the Reserve Bank, under whose authority the PA falls, has said it plans to list African Bank as a means of exiting as a shareholder in the lender. The Bank owns 50% of African Bank, which was placed under curatorship in 2014 after its predecessor almost collapsed. That leaves the central bank in a triple conflict of interest as it is African Bank’s largest shareholder while also being the financial sector regulator and the lender of last resort to the banking industry.
The Bank had appointed corporate financiers, including Rothschild, Bank of America and Moshe Capital, to advise it on a planned two-phase process that would allow it to exit its stake either through a sale to investors or via a possible listing.
However, Bungane told Business Day the planned listing was likely to be delayed until Grindrod Bank was fully integrated and the volatile market conditions caused by Russia’s invasion of Ukraine had eased.
Track record
“The listing will be at a time when market conditions are conducive; when this transaction has been bedded down; and thirdly when we’ve demonstrated some track record in executing our strategy,” he said.
“All of that starts to build a compelling listing proposition.”
African Bank has embarked on an ambitious growth strategy in which it plans to double its retail client base to 3.5-million by 2025, while simultaneously expanding into the small business banking market. It has said it wants to bank at least 100,000 small to medium-sized businesses (SMEs) by 2025, an ambition that will put it on a competitive collision course with Sasfin Bank and Capitec.
“I’m not too worried about crowded spaces — we’re going to be very innovative in our digital SME offering,” said Bungane.
“We’re looking to build scale and diversify the business. We want to be a fully fledged retail and business bank.”
Sasfin’s banking focus is purely on SMEs, while Capitec is also making an aggressive push into business banking after its 2019 buyout of Mercantile Bank.
Nevertheless, Bungane said, it was critical that African Bank amplified its business banking credentials, and the purchase of Grindrod Bank should give it a strong entry point into both the business banking and property finance market.
Perfect fit
“This is an excellent fit for both parties,” Grindrod Bank CEO David Polkinghorne said.
“The deal has strong support from the shareholders and will enable diversification and growth. African Bank has strong capital and liquidity positions to support the growth of the merged businesses.”
Grindrod Ltd CEO Andrew Waller said the sale of the bank aligns with its long-stated intention to separate its freight and banking services businesses.
“African Bank, with its strategy of building a scalable and sustainable diversified offering across the consumer and business banking segments, is the appropriate shareholder to support Grindrod Bank’s growth strategy and is a perfect fit for its employees and clients,” said Waller.
The net asset value of Grindrod Financial Holdings, the holding company in which Grindrod Bank is housed, was R1.672bn at end-December 2021. Its net profit after tax for the year to end-December 2021 was R109.4m.
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