Capitec splashes R500m to gain control of Avafin

SA’s biggest bank by retail customers, Capitec, says it is in talks to take a controlling stake in Cyprus-based online consumer lending group Avafin Holding for as much as €26.3m (R530m) as part of its internationalisation strategy to grow its footprint in the e-commerce lending space.

Capitec has been on a drive to diversify its revenue sources and picked up a 40% stake in Avafin in March 2017, though at the time Capitec had said it did not intend to become a controlling shareholder.

The deal, which is subject to approval by the Financial Surveillance Department of the SA Reserve Bank and Polish competition authority, was granted the green light by the Prudential Authority and will see Capitec’s holdings in Avafin jump to 97.69%.

Avafin, previously known as Cream Finance provides online consumer loan products in several countries, including Poland, Latvia, Georgia, the Czech Republic, Mexico and Denmark.

On Tuesday Capitec CEO Gerrie Fourie said rather than acquiring large businesses or pursuing new banking licences, which can be costly and time-consuming, the group had identified Avafin as an ideal partner for its global expansion strategy.

He said Avafin was closely aligned to Capitec’s client-centric retail business model and well positioned for growth because it was a small, agile credit business with exposure to multiple markets, strong credit principles and a high-potential management team.

“Acquiring a controlling stake in Avafin is a strategic opportunity to diversify our income sources and build on our experience in foreign markets,” Fourie said.

“Capitec aims to leverage the synergies between the two companies and continue to grow its footprint in the online consumer lending space. We believe this acquisition positions Capitec well for future growth,” he said.

Additionally, the move is meant to aid Capitec — which has a R244bn market capitalisation on the JSE — in its bid to expand its product range in existing markets, while introducing its existing product range to new markets like Avafin to continue its growth trajectory.

Despite the bank’s proposed acquisition of a controlling interest in Avafin, Capitec said the international online consumer lending group’s management would retain the residual interest in the business, aligning with Capitec’s philosophy of management ownership.

Last week Capitec flagged that headline earnings per share (heps) would increase 14%-16% for its year to end-February, as it saw a reduction in bad debt.

Stellenbosch-based Capitec, one of SA’s biggest success stories, is SA’s largest retail bank by customer numbers, with a total number of active clients at 21.1 million. Over the years it has diversified from a lender and a bank to offering business banking, insurance, payment services and telecommunications. Retail banking still accounts for the bulk of the group’s profit at 62.5%, followed by insurance (32.5%), with the rest coming from business banking.

Capitec shares were up 1.99% to R2,177.47 on Tuesday, having shored up more than 50% in the past three years.

gumedemi@businesslive.co.za