Ghana’s first hostile banking takeover given the go-ahead
Over the past year, Ghana’s increasingly sophisticated financial services industry has been playing host to what is effectively the first ever attempt at a hostile takeover of one bank by another.
Ordinarily, this should be cause for excitement, as it evidences the deepening of the country’s financial markets. However, Ghana’s impending watershed hostile bank takeover may hold the potential for being hostile to the fortunes of Ghanaians themselves and by extension the national economy they collectively own and operate.
The drama being played out involves the ongoing efforts by Republic Bank of Trinidad and Tobago to acquire at least a controlling stake in, and possibly sole ownership of HFC Bank, currently still majority Ghanaian-owned.
Last week, the Supreme Court overturned an injunction placed earlier by a High Court, which had prevented Republic Bank from going ahead with its acquisition. But this is just the latest episode in a long drawn out saga that has so far proved to be the most acrimonious corporate acquisition played out on the Ghana Stock Exchange so far.
Having initially got its foot in the door by acquiring the equity stakes in HFC Bank, which were hitherto held by some foreign institutional minority shareholders such as Union Homes – a Nigerian mortgage finance institution – as well as an emerging market equity fund, Republic Bank has since launched a fully fledged attempt to take over its Ghanaian target.
To be sure, Republic Bank officials and their apologists point out that their takeover bid was triggered by Ghana’s own securities laws which demand that once an institutional investor’s equity stake in a company listed on the Ghana Stock Exchange – which HFC Bank is – has reached 40 per cent then it must offer to buy out all the shareholders who own the other 60 per cent.
However, HFC Bank’s management, backed by several local individual and institutional shareholders, points out that when Republic Bank began buying into the Ghanaian bank, it solemnly promised not to acquire a stake large enough to trigger that rule; and had gone on to agree to a waiver of its rights under the rule in case it did eventually buy up to a 40% stake.
The result has been an acrimonious, bruising battle between Republic Bank on the one side and HFC Bank’s management and board as well as many of its minority shareholders on the other.
This, however, is not simply a battle being fought between a relatively big foreign bank and a much smaller local one; the largest Ghanaian institutional shareholder, the Social Security and National Insurance Trust, which manages most of the pension funds in the country, is being widely rumored to have lined up behind Republic Bank, although the Trust’s management denies that any such decision has been taken.
Actually, considering that SSNIT is a state-owned institution and the incumbent government has adopted the protection and expansion of local ownership and content in the economy as one of its most trumpeted mantras, it would find it difficult to explain any decision to sell its pivotal 26 per cent stake in HFC Bank to Republic Bank. However, this is not the first time SSNIT is taking a position which openly defies that of the state with regard to local ownership. A couple of years ago, it sold its overwhelming majority stake in the erstwhile The Trust Bank to Ecobank Transnational Incorporated, a foreign banking group, which then went on to hand it over to its Ghanaian subsidiary, Ecobank Ghana, to be swallowed up.
Since then though, SSNIT has seemed to have recanted its decision to sell most of its stake in the erstwhile Merchant Bank [now Universal Merchant Bank] to an indigenous special purpose equity fund, rather than South Africa’s First Rand Bank which had indeed made a higher offer, was ostensibly in order to preserve UMB’s status as a Ghanaian-owned bank.
Indeed, at the time SSNIT claimed it had been further enthused about its decision to sell to the local Fortiz Fund by that institution’s offer to eventually float some of the bank’s shares on the GSE to give the local investing public the chance to buy into it, which is another reason why SSNIT will be reluctant to sell its stake in HFC Bank to Republic Bank. If it does, Republic Bank would be well on its way to a complete acquisition of HFC which ultimately could end in a delisting from the stock market, thus depriving Ghanaian shareholders of the opportunity to benefit from this hugely successful bank’s fortunes.
Unsurprisingly all sorts of conspiracy theories have been making the rounds. The most popular points towards shadowy powerful interests in government, acting in their private capacities, in pursuit of their own private agenda but leveraging on the strong influence they can bring to bear on the acquisition process with a view to gaining influence in HFC Bank.
The hostile nature of the takeover being attempted is illustrated by the legal suits being brought against it, one by two shareholders of the bank, in their own capacities, and the other by the bank itself which sought an injunction to halt the takeover process. Both, however, have failed because Ghana’s laws give leeway for it to happen; halting the takeover would have to be driven by strategic considerations rather than simply legal ones.
But resistance to the ongoing hostile takeover bid has not been eliminated by the Supreme Court’s ruling and indeed is only to be expected, for the simple reason that it does not make much sense for a country that is finally realising the virtues of local content and local participation in its own economy.
Proponents of the takeover point out that Republic Bank would be able to bring its vastly superior financial muscle to bear on the activities of HFC even as that bank loses its identity. Indeed, it would make it easier for HFC to recapitalise significantly with the weight of Republic Bank with it’s over US$9 billion in total assets fully behind it.
However, critics of the takeover being attempted correctly point out that HFC Bank does not need Republic Bank and an accompanying loss of indigenous ownership to increase its capital and capacity to levels that would enable it maximise its potentials. HFC Bank is already one of Ghana’s most accomplished banks, with an enviable track record stretching back nearly a quarter of a century, first as the country’s leading mortgage finance institution, and more recently as arguably the most universal of all the universal banks, engaging in commercial, mortgage and investment banking, as well as microfinance with equal aplomb.
It is the only Ghanaian bank that has successfully raised both equity capital in cedis and debt, through bond issues in US dollars from the Ghana Stock Exchange. Recently the bank secured a credit facility of US$70 million from some international lenders for use by local companies along the upstream oil and gas supply chain. This shows how much confidence both the local and international financial markets have in the bank and how easily it could raise new capital from the stock market locally, without losing its indigenous status.
Actually, HFC Bank is already one of the best mid-sized banks in Ghana, while still a local one. As of the end of 2013, the bank ranked 17th by total assets [GH¢937.07 million but instructively ranks 13th by the size of its shareholders funds, which stood at GH¢163.9 million by the end of 2013. This gives it the 11th best ratio of net worth to total assets in Ghana’s banking industry at 17.47 per cent and thus disproves the argument that it is direly in need of recapitalisation. It is eminently profitable, one of the fastest-growing banks in the country and one of the best-performing stocks listed on the GSE.
Little wonder then that Republic Bank covets ownership of HFC Bank. But all the more reason why Ghana’s local content ambitions would be better served by HFC Bank remaining an indigenous one.GB