Absa says she is about to implement a new B-BBEE transaction …
Absa’s first empowerment deal has long raised eyebrows as to whether it was true empowerment. (Photo: Waldo Swiegers / Bloomberg via Getty Images)
Absa is no stranger to B-BBEE transactions and says she is on the verge of a second B-BBEE transaction. Hopefully this will provide real ownership.
South African financial services group Absa has made progress on plans to implement a second Black Economic Empowerment Operation (B-BBEE).
At present, the scheme will hold up to 8% of the issued share capital of the Group, which is equivalent to approximately 9.4 billion Rand, based on the current share price of 140 Rand. This will be a wide range of investors and third party employees. The personal component will enable all Absa employees through the Group’s operations to become shareholders and participate in the growth of the Group.
“While [the planned transaction] is aligned with the South African government’s B-BBEE goals and the commitments contained in the Financial Sector Code, we will also expand the offering to include employees in all of our operating markets, ”said Jason Quinn, Director acting general of the Absa group.
Craig Gradidge, who is co-founder of Gradidge Mahura Investments and closely monitors B-BBEE transactions, notes that while the announcement is an interesting development, it lacks the details necessary to make a judgment. “I’m hoping Absa will include a public component and maybe structure it like an evergreen program,” he says.
In 2004, Absa became the first of South Africa’s major banks to complete a major B-BBEE transaction, issuing a 10% stake to Batho Bonke Capital via the sale of preferred shares to R2 each.
The Batho Bonke empowerment consortium has thus become Absa’s second shareholder.
The deal was partially unwound in 2009, with the remaining 5.01% being sold by the consortium in 2012. Billions of rand were paid to beneficiaries, from community trusts to women’s groups, BEE companies, stokvels and employees.
However, Absa’s first empowerment deal has long raised eyebrows as to whether it was true empowerment.
“The deal was in effect an options structure in which the option holders had no real ownership,” said Intellidex chairman Stuart Theobald. “It was the first bank empowerment agreement and the standards and expectations for the agreements weren’t really formed at this point. “
The deal, which is a sweetener to the divestiture by Barclays, gives Absa the opportunity to get back to the drawing board.
On average, the country’s 19 banks have 23.7% black property. Nevertheless Absa is around 12.9%, according to its annual report. It has no direct black ownership and its ownership score is now an aggregation of: principle once empowered, always empowered, indirect ownership (via people like the PIC) and equity equivalents resulting from excess funding B-BBEE transactions. Also, in 2017, the The Financial Sector Transformation Council introduced higher empowerment funding targets, resulting in a reduction in Group equity equivalents of 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 Absa Empowerment Trust in 2017. Dividends received by the Trust in connection with these shares were used to purchase additional shares, bringing this stake to approximately 1.9%. These actions will be part of the new B-BBEE transaction.
The transaction was delayed by Covid-19 and the various blockages which led to unfavorable market conditions and an economic contraction.
Full details of the proposed scheme, which will be submitted to shareholders and others for approval, will be released once the design is finalized. The device should be implemented in 2022. DM / BM