It has been reported that BNP Paribas has hired Barclays to advice it on the potential sale of RCS Group, a South African based independent consumer finance company that focuses primarily on providing retail credit card facilities.
In December 1999, TFG established RCS, a personal loans business, as a joint venture with the Mineworkers Investment Corporation. TFG held 55% of the shares with the Mineworkers Investment Corporation owning the balance.
In 2004, The Standard Bank of South Africa identified the retail and personal financial services sector in South Africa as having ongoing growth potential. SBSA also identified RCS as a profitable business that has the required infrastructure and the know-how to compete in the sector hence the parties considered the proposed deal as an opportunity to enter the sector.
On 29 August 2005, Standard Bank acquired an initial 25% of RCS for R358 million with an option to acquire a further 20% in RCS from the Mineworkers Investment Corporation.
RCS is an operationally independent consumer finance company that focuses primarily on providing retail credit card facilities (general purpose, private label and co-branded), personal loans and insurance to the mass middle market. RCS provides a broad range of financial services under its own brand and in association with a number of retail entities in South Africa, Namibia and Botswana.
In 2014, TFG and The Standard Bank of South Africa agreed to sell 100% of RCS Investment Holdings Limited to BNP Paribas Personal Finance S.A.(the European leader in personal loans) and a subsidiary of BNP Paribas S.A for a consideration of R2,3 billion based on a net asset value of R1,7 billion giving a goodwill of R600m.
TFG owned 55% while Standard Bank owned 45% of RCS at the time.
TFG’s stated that the intention was to reduce its shareholding in RCS to below 50% as a large portion of its net debt related to RCS. The sale was embarked to reduce its gearing and its exposure to the unsecured lending market.
TFG Group’s operations are financed primarily by means of its own cash flow as well as banking facilities. Debt net of cash totalled R2.659 billion and represented net retail gearing of 36,8% in 2014.
RCS operated as a financial services division for TFG split as follows; RCS Personal Finance, group’s personal loans business, and RCS Cards, which offers credit to customers of merchants outside of the group.
RCS was a big money spinner for TFG.
The personal loans business had extended R2,2 billion in loans with a receivables book of R659 million in 2015. The success of this lending arrangement was apparent in the low level of delinquency and subsequent bad debt. Only 4% of the book is in arrears.
In 2019, RCS bought Absa Bank’s portfolio of 1.6 million Edcon store cards.
In 2019 RCS Group acquired ABSA’s stake in the Edcon store card portfolios (Edcon was famous for owning Boardmans, CNA, Jet, Legit, and Edgars) in South Africa and Namibia. The value of the gross book purchased is R4.7 billion. The purchase was financed by means of external funding, and an equity injection from BNP Paribas Personal Finance Société Anonyme.
RCS secured exclusive rights to provide Edcon customers with consumer credit products and services: store cards, universal credit cards, personal loans, and more.
In 2012, ABSA had bought the credit card portfolio of Edcon for R10bn which had 3.8m active card accounts.
2021, RCS partnered with Mr Price Group to offer credit services. This hasn’t affected cash sales as cash sales during Q4 of 2021 increased by 4.6% and constituted 87.1% of total retail sales. MRP’s plan is for credit sales not to exceed 25% of sales. Currently, credit sales make up 15%.
1 April 2022, the RCS Group acquired 100% of the issued share capital and voting rights of Mobicred for R88.78 million. The acquisition of Mobicred will accelerate RCS’s growth into the e-commerce ecosystem by adding new and bespoke brands to their already well-established shopping network of over 28 000 stores. The acquisition also allows the group to tap into new customer segments, with a particular focus on Gen-Z’s and millennials, the biggest proponents of online sales in South Africa.
High interest rates work in RCS’s favour.
Card and private label receivables consist of a number of individual unsecured revolving card accounts as well as amounts due for services delivered on credit. The accounts attract variable and fixed interest rates, and terms vary from revolving to 36 months. The average effective interest rate for the year under review is 16.27%.
Personal loan receivables comprise a number of individual unsecured loans. The personal loans attract interest at fixed interest rates and terms vary from 12 to 60 months. The interest rate on each loan is determined when the loan is initially advanced and based on the risk profile of the customer. The average effective interest rate for the year under review is 21.98%.
Private Label portfolio currently includes Game, Dion Wired, Makro, Builders, Queenspark, Tekkie Town, Spitz, Kurt Geiger, Green Cross, Carvela, Cotton On, Typo and Factorie.
In FY21, amounts owing to BNP Paribas Société Anonyme, South Africa Branch by RCS Group in funding and interest owing amounted to R204.145m. The funding lines are unsecured and bear interest at a variable rate linked to the relevant JIBAR for the term of the funding.
The RCS Group declared a distribution of capital of R200m to the shareholder, BNP Paribas Personal Finance Sociètè Anonyme (France) during FY21 and R500m post year end. Good money this one.
RCS was well supported by BNP as can be seen below;
- R1.5bn committed standby liquidity facility provided by BNP Paribas (France)
- R2.1bn funding line provided by BNP Paribas (Johannesburg)
- 100% of RCS SA funding is guaranteed and/provided by BNP
RCS has been a good business for BNP Paribas and finding a suitable suitor might not prove to be a difficult task.
If you ever wondered what happened to Edcon, sell the below link;