Absa to implement a new B-BBEE transaction

South African financial services group, Absa, has progressed with its plans to implement a second broad-based black economic empowerment (B-BBEE) transaction. 

As it stands, the scheme will hold up to 8% of the Group’s issued share capital, which equates to about R9.4-billion, based on the current share price of R140. It will be broad-based, including third-party investors and staff. The staff component will enable all Absa employees across the Group’s operations to become shareholders and participate in the Group’s growth.

“While [the planned transaction] is aligned with the South African government’s B-BBEE objectives and with the commitments contained in the Financial Sector Code, we will also extend the offer to include employees across our operating markets,” said Jason Quinn, Absa Interim Group Chief Executive.

Craig Gradidge, who is co-founder of Gradidge Mahura Investments and watches B-BBEE deals closely, notes that while the announcement is an interesting development, it lacks the necessary detail to make a judgement. “Hopefully Absa will include a public component, and perhaps structure it as an evergreen scheme,” he says.

In 2004, Absa became the first of the large banks in South Africa to conclude a significant B-BBEE transaction, issuing a 10% stake to Batho Bonke Capital via sale of preference shares at R2 each. 

The Batho Bonke empowerment consortium consequently became the second-largest shareholder in Absa. 

The deal was partly unwound in 2009, with the remaining 5.01% sold by the consortium in 2012. Billions of rands flowed to beneficiaries, from community trusts to women’s groups, BEE companies, stokvels and employees.

However Absa’s first empowerment deal has long raised eyebrows on whether it amounted to genuine empowerment. 

“The deal was effectively an option structure in which option holders did not have true ownership,” says Intellidex chairman Stuart Theobald. “It was the first bank empowerment deal and the standards and expectations for deals weren’t really formed at that point.”

This deal, which is a sweetener from divestment by Barclays, gives Absa the opportunity to return to the drawing board. 

On average, the country’s 19 banks have black ownership of 23.7%. However Absa’s is hovering at around 12.9%, according to its annual report. It has no direct black ownership and its ownership score is now an aggregation of: once empowered, always empowered principle, indirect ownership (via the likes of the PIC), and equity equivalents arising from surplus of B-BBEE transaction financing. Also, in 2017 the Financial Sector Transformation Council introduced higher empowerment financing targets, which resulted in the Group’s equity equivalents reducing by 2.4%.

Subsequently, as part of its separation from Barclays, Absa announced that it would undertake a new B-BBEE transaction in line with its transformation efforts. Barclays transferred a 1.5% stake in Absa to the Absa Empowerment Trust in 2017. Dividends received by the Trust in relation to those shares have been used to purchase additional shares, raising this stake to about 1.9%. These shares will form part of the new B-BBEE transaction.

The transaction has been delayed by Covid-19 and the various lockdowns which led to unfavourable market conditions and an economic contraction. 

Full details of the proposed scheme, which will be subject to shareholder and other approvals, will be published once the design has been finalised. The scheme is expected to be implemented in 2022. DM/BM