Lack of transparency, political uncertainties and increased regulatory constraints led to the rejection of a historic transaction in West African finance. Young Africa's analysis.

It was in a succinct statement on October 29 that the Oragroup banking group "took note" of the unfavorable assent of the Banking Commission of the West African Monetary Union (CBUMOA) regarding its change of majority shareholder. The regulator's decision puts a brake on the takeover, announced in November 2019, by the Social Insurance Institute - General State Employees' Retirement Fund (IPS-CGRAE) of Oragroup shares held by the investment fund. pan-African investment Emerging Capital Partners (ECP) and its institutional partners (Proparco, DEG, BIO and BOAD).

“The Oragroup funding round remains unchanged. It is up to the shareholders to decide what to do next, ”comments Ndèye Bineta Delphine Ndiaye, group communications director, contacted by Jeune Afrique. At the end of 2019, Oragroup was 50.01% owned by ECP Financial Holding and 9% by IPS-CGRAE.

As revealed by Jeune Afrique Business+, the management of the pension fund, provided by Abdourahmane Berté, is already working to find new partners in order to convince the regulator and finalize the transaction, particularly on the side of other pension funds. of the sub-region.

A “temporary” halt?

The CBUMOA veto, however, puts a halt – temporarily, the parties to the case insist – to a historic operation in the West African financial sector, namely the takeover of a banking establishment by a local pension fund manager. .

The regulator's decision also signals certain weaknesses in the preparation of this transaction, as well as a poor appreciation of both the recent strengthening of regulatory requirements and the regional political environment, in full turbulence, according to several sector leaders interviewed by Jeune Afrique, who requested anonymity to comment on an operation involving a major financial player in the region and a listed company.

* Lack of information on the financial strength of the buyer

According to information from Jeune Afrique, the unfavorable opinion of the regulator comes after long months of fruitless exchanges between the Banking Commission and the Oragroup-CGRAE duo. Last June, the CBUMOA was already impatient with “the absence of recent additional information” essential to the analysis of the “financial solidity” of the buyer.

The concern of central bankers is twofold. On the one hand, it concerns the transaction announced at the end of November, the details of which have not been made public and the outlines of which (price, terms of payment) remained uncertain in the eyes of the regulator. The latter is also concerned about the capacity of the Ivorian pension fund to ensure the development as well as the regulatory compliance of Oragroup's subsidiaries.

“In addition to its pension payment obligations, IPS-CGRAE must, if necessary, contribute to the mobilization of resources to support the banking subsidiaries of Oragroup – which is present in twelve countries in Central and West Africa, but also to support Versus Bank, which it owns more than 45%”, deciphers a West African banker. In addition, Oragroup, the fourth bank in the UEMOA zone in terms of balance sheet, is on the list of regional systemically important banking institutions to which a capital surcharge applies.

“The question to ask is the following: does the new majority shareholder have the backbone strong enough to support a systemic player in the event of a crisis. With several establishments and savers in several countries, the ability to strengthen equity so as not to weaken the entire system is now essential”, according to this banker.

“The Caisse Ivoirienne has no difficulty in fulfilling its obligations as a pension fund. It is rather its investment strategy in the banking sector which is called into question, ”explains another source.

Furthermore, the acquisition of a stake in Oragroup would lead the Caisse Ivoirienne to invest more than 30% of its investment portfolio in risky financial assets (equities) and 15% with the same issuer. A scenario that would go against the institution's investment policy and the injunctions of the social security regulator.

* Institutional environment and political support

In November 2019, when the transaction with ECP was announced, the management of the IPS-CGRAE welcomed this unprecedented operation "financed by exceptional income".

In fact, the availability of the resources necessary for the acquisition of Oragroup is largely based on the clearance by the Ivorian State, in recent years, of various arrears and charges due to the pension fund, according to our information.

A catch-up made possible in large part by the support of the former Ivorian Prime Minister Amadou Gon Coulibaly, who died on July 8. “Without the support of the latter, the continued support of Abidjan for this adventure in the bank was no longer guaranteed. If you add to that the uncertainties linked to the presidential election…”, deciphers an Ivorian banker.

Without entirely rejecting this reading, one of his Senegalese colleagues rather insists on the fact that “the banking commission interprets the texts to the letter and the BCEAO always gets what it wants”. In other words, the reluctance to provide certain information to the regulator ended up weighing.

According to this source, it is important to note that "it was not Oragroup's banking license that was at stake, but the buyer's ability to ensure the group's future compliance with the requirements in terms of KYC (know your customers ), finance, and governance. It is one thing to be a minority shareholder in a bank – as the IPS-CGRAE is in several establishments in the region – another is to manage it on a day-to-day basis”.

“The regulator surely took into account the fact that the pension fund was not a bank. It's always a blocking subject, they like that banks are bought by financial groups. Normally the current shareholder remains in the capital so there is no significant impact, except in terms of image. Some customers may worry and especially it may affect the value of the bank. The rest a priori is unchanged…”, explains another familiar with the regional banking sector.

* Even stronger regulation with Basel 2 and Basel 3

More lenient, the boss of one of the first five Ivorian banking groups notes: “It is an unfavorable opinion, of course. But it is also the possibility of introducing a new file with elements likely to allay the fears of the regulator. This has at least the advantage of specifying the missing elements”. According to our interlocutor, “the Oragroup-CGRAE deal is the first major operation carried out since the transposition into our regulations of the Basel 2 and Basel 3 standards. It was difficult to anticipate the requirements of the Banking Commission”.

Decided in the wake of the financial crisis of 2007-2008, these provisions have radically increased the requirements imposed on banks, "in particular the need to continuously strengthen the capital of banks".

“Previously, there was not the same level of requirement. Even today, a beneficiary bank's priority is to strengthen its equity. Satisfying the shareholder and distributing dividends have become secondary. The question of the type of majority shareholder now required arises,” says our source.

The latter regrets the "scissors effect" imposed by the new regulations. "We are being asked for more banking, but also more control efforts, risk management, strengthening equity capital... It is impossible to pursue both objectives at the same time".

This state of affairs further complicates the equation for IPS-CGRAE and for ECP. According to our information, the economic crisis caused by the Covid-19 pandemic has increased pressure on social welfare institutions, which are also required to maintain a high level of "technical reserves" to ensure payment of benefits over several dozen of months. Also, convincing the other regional funds to join in the takeover of Oragroup does not look easy.