Update HSBC (HBC)
08/30/2010 3:47 pm EST
HSBC beat out rival Standard Chartered (SCBFF.PK) for the right to hammer out a formal offer to acquire South Africa’s fourth largest bank over the next two months. I think HSBC will pull it off. Old Mutual own 51% of Nedbank and the insurer is a motivated seller because the company is selling assets to pay down debt. HSBC won’t be able to gain 100% of Nedbank’s outstanding shares because South African law reserves a percentage of shares for black investors. But the company should be able to gain the 70% of shares that it has said will let it achieve it strategic goals.
And what are those goals?
First, but not foremost, HSBC wants to gain a foothold in Africa’s largest economy.
Second, but more important, HSBC wants to stake a claim to financing the increasingly important trade between Africa and Asia. Roughly a third of Africa’s exports—mostly minerals and other commodities—head for Asia these days. Ten years ago only 1% of Africa’s exports went to China. Today China is the destination for 10% of the continent’s exports. And with China investing in Africa’s commodities as fast as it can identify deals and funding big infrastructure projects like the proposed Durban to Johannesburg high-speed rail line that Africa-China traffic will continue to grow.
And now that HSBC has defined itself as an Asian bank, it can’t afford not to have a presence in Africa.
The price looks reasonable at an estimated $8 billion. And I think HSBC will manage the sensitive politics of South Africa well enough to ink the deal.
As of August 30 I’m keeping my target price for this Jubak’s Pick at $67 a share by June 2011.
Full disclosure: I don’t own shares of any company mentioned in this post in my personal account.
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