BANK BEE DEAL
The nitty-gritty of Absa’s R11.2-billion black economic empowerment deal
In the week that the Financial Sector Conduct Authority released its final strategy for promoting transformation in the financial services sector, one of the country’s biggest banks, Absa, announced an R11.2bn broad-based black economic empowerment deal, subject to shareholder approval.
The deal is expected to allocate 7% of the total group shareholding to structures that will benefit ordinary black South Africans through a Corporate Social Investment (CSI) trust, and employees through a staff trust. Once the broad-based black economic empowerment deal is finalised, black ownership of Absa will exceed the 25% threshold set out in the Financial Sector Charter.
The 4% perpetual CSI trust will be focused on education and youth employability support for black South African beneficiaries. The trust will receive an annual dividend equal to 25% of the dividend per share paid by Absa Group. The CSI trust will spend the money it receives on CSI programmes in South Africa and beneficiaries will be reviewed annually.
Absa staff employed in South Africa will participate in the 3% component of the transaction, subject to shareholder approval. All eligible employees will receive the same share allocation, irrespective of race, background or seniority. Black staff will receive an additional 20% allocation, which means black staff members will receive just over 82% of the value of the staff trust. All staff in the 3% component will receive an annual dividend equal to 25% of the dividend per share paid by Absa Group. The shares will vest after a five-year period, meaning eligible employees will take ownership of the shares, net of applicable taxes and any outstanding funding costs.
Staff employed by Absa subsidiaries in other countries will be able to participate in a similar award programme, provided those subsidiaries elect to participate based on local considerations. However, this initiative will be based on cash rather than Absa Group shares, given regulatory and taxation complexities related to cross-border shareholding.
‘Force for good’
Absa says the intention is that the programme will broadly mirror the terms of the 3% share scheme in South Africa, with all eligible employees receiving an allocation equal in value to that awarded to staff in South Africa, 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 Group’s market capitalisation.
“The transaction was specifically designed to align with our intent of being an active force for good, firmly demonstrating our commitment to broad-based black economic empowerment as we build a diverse and inclusive organisation not only in South Africa, but also more broadly across our business,” said Arrie Rautenbach, Absa Group CEO.
“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.”
A CSI trust, benefiting black communities, will indirectly own a 4% shareholding, while a staff trust will indirectly hold 3% of Absa Group, collectively constituting the 7% shareholding in the transaction. Black staff members in South Africa will receive just over 82% of the value of the staff trust. A further equivalent of about 1% of Absa Group shareholding will be made available to staff employed by subsidiaries in other markets.
Rautenbach says the transaction signals another substantial milestone in Absa’s ongoing efforts to empower communities. A transaction circular will be published in May and shareholders will vote on the transaction at a general meeting on 2 June 2023.
The Conduct of Financial Institutions Bill, to be tabled in Parliament by National Treasury this year, will make the promotion of financial sector transformation an explicit function of the Financial Sector Conduct Authority and empower it to take reasonable regulatory action against financial institutions that do not uphold transformation commitments as set out in their plans. BM/DM