Atlas Mara buys up Fairfax stakes in GroCapital

Atlas Mara

Atlas Mara said it has acquired 35% stake in GroCapital, partly-owned lending and treasury investment company of Fairfax Africa.

The sub-Saharan financial services group said in a statement that the transaction will be subject to finalizing definitive agreements, as well as the approval of the South African Reserve Bank, the Minister of Finance, and the Competition Commission, and other regulatory approvals and customary conditions precedent.

In addition to Fairfax Africa, GroCapital’s shareholders include the Public Investment Corporation of South Africa (35%) and AFGRI Holdings Limited (“AHL”) (30%). Fairfax Africa has a 43% indirect beneficial interest in AHL.

GroCapital offers through its subsidiaries comprehensive traditional business banking such as lending, transactional banking and treasury functions, as well as alliance, business and international banking.

Its subsidiaries are known for a focus on the development of market-leading, niche alliance transactional banking offerings in partnership with businesses. GroCapital’s go-forward strategy is to focus on companies in agriculture and food production, offering debt origination, forex and commodity trading, specialised finance and broking services, and an array of financial and insurance products and services directly to the farmer and agricultural intermediaries. As part of AHL, GroCapital has an established track record in financial services, offering bespoke financial products and services to the agribusiness and food sectors.

AHL maintains c. $1 billion in farmer and corporate loan portfolios, with a proven history of negligible bad debts through multiple agricultural cycles.

When concluded, this transaction would position Atlas Mara to access the South African banking market, enabling it to participate in financing of trade flows, foreign exchange, commodity finance and retail banking, and allow for operational integration into the core banking and technology environment of the Company, including with regard to digital banking and cross-border payments. The Board sees considerable potential for the Company to capitalize on the large market opportunity in agricultural finance (“agrifinance”) in sub-Saharan Africa and the unique positioning Atlas Mara could achieve with this strategic transaction to enhance its capabilities in this industry vertical.

The World Bank estimated in a 2016 report on agribusiness in sub-Saharan Africa that the sector faces an annual financing gap of at least $11 billion, and agribusinesses routinely cite the lack of access to financing as one of the key impediments to their growth. Atlas Mara’s current footprint includes markets in which agriculture is a leading contributor to economic output but remains underbanked.

For example, in Nigeria, the Company’s largest market, agriculture is one of the largest economic contributors at more than 20% of GDP and more than 30% of employment per the World Bank’s 2017 data, but represents a far smaller proportion of credit and financial services transactions. Atlas Mara’s footprint is well matched to a focused agrifinance strategy, and the Board foresees the potential of such a strategic transaction to enhance the Company’s agrifinance-specific capabilities and expand its reach into new, attractive agrifinance markets.

The Board of Directors of Atlas Mara will form a special committee of independent directors who are unaffiliated with Fairfax Africa or GroCapital to assess the strategic merits of the potential transaction, and to oversee negotiation of the key terms of a proposed agreement.