Absa to boost black ownership above 25%
Absa has announced a new broad-based BEE (BBBEE) transaction that will boost the black ownership levels of the banking group to above the 25% threshold outlined in the Financial Sector Charter.
The deal, which is set to be implemented later in 2023 subject to shareholder approval, will see 7% of the banking group’s total shareholding allocated to structures that benefit black South Africans through a corporate social investment (CSI) trust, while Absa employees will benefit through a staff trust. That equates to about R11.2bn based on Absa’s recent market value, making the transaction one of the largest BBBEE deals in recent times.
“The transaction was specifically designed to align with our intent of being an active force for good, firmly demonstrating our commitment to BBBEE as we build a diverse and inclusive organisation,” said Absa CEO Arrie Rautenbach.
“The transaction is the next big step in our broader transformation journey and, at the same time, recognises the role that our staff and communities play by giving them the opportunity to benefit from the value generated by the group.”
Absa has been trying to bolster its transformation credentials after facing criticism in April 2022 after it appointed Rautenbach, a white male, in the wake of Daniel Mminele’s exit about a year before over reported differences with the bank’s board. Mminele was the first black CEO in Absa’s history.
In June 2022 it announced a shake-up that was partly designed to enhance the representation of black employees in its executive committee. In December 2022 it announced the appointment of two more black executives in a further effort to boost transformation.
Absa’s new BBBEE deal will involve a CSI trust that benefits black communities indirectly owning a 4% stake in the group while a staff trust will indirectly hold 3%. The 4% perpetual CSI trust, which will be focused on education and youth employment support for black beneficiaries in SA, will receive an annual dividend equal to 25% of the dividend per share paid by the banking group.
Staff employed in SA will participate in the 3% component of the deal, subject to shareholder approval, and will also receive an annual dividend equal to 25% of the group’s per share dividend. The shares will vest after five years, meaning eligible employees will take ownership of the shares after the application of taxes and other outstanding funding costs. While all eligible employees will receive the same initial share allocation — irrespective of race, background or seniority — black staff will get an additional 20%, meaning they will effectively receive just more than 82% of the value of the staff trust.
Absa staff employed in markets outside SA will also be able to participate in the initiative, though they will be incentivised in cash rather than shares due to regulatory and taxation complexities related to cross-border shareholding. The programme will aim to mirror the terms of the 3% share scheme in SA.
THE TRANSACTION WAS SPECIFICALLY DESIGNED TO ALIGN WITH OUR INTENT OF BEING AN ACTIVE FORCE FOR GOOD
Arrie Rautenbach Absa CEO
Eligible employees in other markets will receive an allocation equal in value to that awarded to staff in SA, as well as an annual payment equivalent to a 25% trickle dividend and a net cash payment five years after implementation. The value of the programme will equate to about 1% of Absa’s market capitalisation.
“This should be well known by the market — they flagged it for a long time,” said Chris Steward, sector head of financials at Ninety One. “I don’t think there is anything in the numbers that are massively surprising, either the construct or the implied dilution.”