By David Gleason

Nedcor is expected to announce a major rights issue next week that may be as big as R5bn. The announcement may accompany the release of the banking group's annual results on Monday, and the retirement of chairman Chris Liebenberg.

The market is bracing itself for spectacularly bad results from Nedcor but these may be better than expected and certainly no worse than new CE Tom Boardman signalled in his recent trading update.

Boardman is keen to equip the group with an adequate war chest for its long-term development. Included in this will be plans to compete more aggressively in the middle to lower ends of the retail market, sectors from which Nedcor withdrew in the 1990s.

The unsecured, subordinated R2bn loan secured late last year from parent Old Mutual is seen by Nedcor's executive team as inadequate and short term.

Boardman is keen to replace this with long-term capital to secure the group's statutory capital adequacy requirement and provide it with sufficient surplus to execute the strategy he has developed since taking the helm late last year.

This suggests the intention will be to raise sufficient funds by way of a rights issue, coupled perhaps with long-term debt instruments with favourable interestrate structures, to enable Nedcor to repay Mutual's short-term facility. This will not be of much value, however, unless the group is also able simultaneously to replenish its reserves. On the assumption that the repayment to Mutual will be of the full R2bn loan, a further R2bn will be needed to replace this, together with an additional amount of, perhaps, as much as R1bn.

In December Mutual made Nedcor a R2bn 10-year loan. Other capital increases earlier in the year raised R1,7bn. "The key thing is capital," said an analyst. "What will be the size of the rights issue? Sooner or later the authorities are going to require 7,5% Tier 1 capital. All the banks are pretty much there except Nedcor. The longer they wait the bigger the damage to the business."

It is also expected that next week's results meeting will be the last to be attended by Liebenberg as a member of Nedcor's board. Liebenberg turns 70 later this year, the mandatory age for retirement in terms of Nedcor's internal rules.

Seen as being close to the group's last CE, Richard Laubscher, Liebenberg has been the target of much criticism. Laubscher's sudden departure prompted widespread speculation that Liebenberg would soon follow.

Boardman, who was reluctant to discuss any of these matters, also dismissed rumours that the UK-based Standard Chartered was negotiating to buy Nedcor.

"There were talks a long time back, but that's cold news now," he said.

Business Day 18 February 2004