Access Bank in a note to the Nigerian Stock Exchange (NSE) on Friday, said it had received the approvals of the South African and Nigerian regulatory authorities for the proposed R400 million (N10.1 billion) acquisition of the South African-based Grobank Limited.
MoneyCentral decided to look into the books of Grobank to see the kind of assets Access Bank shareholders will be buying into and exposed to.
Data from Grobanks, financial statements shows the bank has been making recurring losses since 2014, which raises questions about how long it will take Access Bank to turn around the Bank, and how much money it will need to invest in that venture.
Grobank made a loss of Rand 58.19 million in 2014, loss of Rand 26.56 million in 2015, loss of Rand 29.35 million in 2016, loss of Rand 25.72 million in 2017, and Rand 48.28 million loss in 2018.
Grobank had total assets of Rand 3.321 billion in 2018, equivalent to N83.9 billion.
Access Bank is buying Grobank for about R400 million, but it is a wonder as to how they valued the bank which has not made profits in 6 years.
Rating agency GCR in November 2020, downgraded Grobank Limited’s national scale issuer rating to BB-(ZA), with the Outlook placed on Rating Watch Evolving.
“The downgrade of Grobank Limited’s (‘the bank’) national scale ratings reflects increased risk to its balance sheet owing to deteriorating levels of capitalisation, less stable funding structure balanced with moderate levels of liquidity and compounded by the strained South African operating environment with the banking sector coming under pressure amidst the COVID-19 pandemic,” GCR said in the note.
“The ratings watch evolving factors in the anticipated acquisition of the bank by Access Bank Nigeria, which in turn will bring in new capital and infrastructure to support its funding strategy and contain downside risk. Grobank’s capital position is precarious and close to breaching the regulatory minimum capital adequacy requirements (as of September 2020).”
GCR added that the competitive position of the bank constrains the rating given the lack of scale and product diversity in comparison to top tier banks.
Under the current shareholders, the bank focuses on food and agri-business financing in South Africa, and given the size of the Agri-economy, strong capacity building of the bank and the owners’/ managers’ strong links into the market, our expectation was that the market position of the bank would be bolstered quickly, GCR said.
“However, the anticipated shareholder change brings uncertainty to the strategic direction for Grobank. Revenue stability has been weak over the past 3-5 years as the bank continues to post losses on the back of limited funding and capital for growth.”
Access Bank said the transaction to buy Grobank is expected to be completed in the second quarter of 2021, subject to completion of other conditions precedent.
Speaking on the development, Herbert Wigwe, the GMD/CEO of Access Bank said:
“Today’s announcement represents significant progress in delivering on our strategic intent of becoming Africa’s Gateway to the World in pursuit of our vision to be the World’s Most Respected African Bank. Our presence in South Africa will no doubt accelerate the attainment of our goal of delivering our More than Banking promise to 100 million unique customers across the continent. It will also build on our existing foundation and deliver enhanced value to our shareholders, employees and other stakeholders.”
At MoneyCentral all we have to say at this point is ‘We shall see’ given the clouds around the numbers of this deal.