Fitch: BPI African Spin Off Could Trigger Shareholder Reshuffle
BPI is seeking to spin off subsidiaries in Angola and Mozambique, plus related supporting businesses, into a new entity to be controlled by existing BPI shareholders. The proposal is subject to shareholder approval at an extraordinary general meeting, expected to be scheduled by November.
In recent years, BPI's profitability was supported by contributions from Banco de Fomento Angola (BFA), its 50.1% subsidiary. Its Portuguese operations barely break even. But the planned disposal of BFA is no surprise, especially because at end-2014, the bank advised that its exposures to the Angolan government and central bank would, from January 2015, be risk weighted at 100% and no longer at 0% and 20%. This would result in weaker capital adequacy ratios and a breach of large exposure limits. Angola's banking supervisory and regulatory arrangements do not meet the European Commission's equivalency tests and this triggered the risk weighting change.
Fitch expects that the proposed demerger will have a neutral overall impact on prudential capital ratios because BPI's domestic and international business are broadly equally capitalised. While profitability indicators will be weakened post African disposals, the bank will benefit from reduced exposure to higher risk operating environments.
If the spin-off of African interests is achieved, BPI will emerge as a domestic player, with a deposit market share of 16%. In our opinion, BPI has weathered the recessionary operating environment in Portugal better than peers, with stronger asset quality indicators that reflect a more conservative approach to underwriting. Consequently, the bank should be well placed to take advantage of economic recovery. Fitch's Outlook on Portugal's sovereign rating is Positive reflecting the economy's gradual rebalancing, underpinned by structural reforms.
We also think the transaction could spur changes in BPI's shareholder base, which currently includes a 44% stake held by Spain's Caixabank. Caixabank withdrew an offer for BPI in June 2015 and we believe that a hypothetical renewal of the bid would be subject to a change in existing voting rights, which cap CaixaBank's vote at 20%. Depending on decisions made by BPI's existing shareholders, this could trigger additional banking sector developments and potential scope for new investors, including prospective investors in Novo Banco which emerged from the failed Banco Espirito Santo, to turn their eye to BPI. The Novo Banco sale is set to resume in 2016 but achieving it might still be complicated if results of the ECB's stress test, to be published by end-2015, reveal additional solvency problems at the bank.
Investors with a higher risk appetite may, on the other hand, be keen to enter into the shareholder base of the spun-off African business. Fitch downgraded Angola's sovereign rating to 'B+' in September 2015, largely because the country's dependence on hydrocarbons leaves it exposed to the sharp drop in oil prices.