Global money managers have piled into a first-of-its kind dollar denominated debt offering concluded by Absa last week, which has given another ringing endorsement of the country’s banking system and may pave the way for issuances by other local banks.
On Thursday last week, Absa became the first African bank to undertake a “hybrid” bond issuance, when it looked to raise $400m from international investors. The bonds pay a fixed coupon (interest rate) and count towards capital reserves.
Demand for the offering was six times oversubscribed, implying Absa could have raised six times the amount of money that was being sought, a figure so high that it caught the attention of investment bankers that Business Day spoke to recently.
“The demand is something we did not expect, it was significant. We think it’s a big vote of confidence for Absa and the broader SA banking industry,” says Absa treasurer Deon Raju.
The demand allowed Absa to increase the offering to $500m and improve the pricing, effectively lowering the interest rate Absa will pay on the money.
The hybrid bonds are effectively a replacement for preference share funding that was phased out under Basel 3. The bonds will pay 6.375% interest (coupon) and can be counted as capital held against the bank’s ongoing lending activities.
Raju says the 250 institutional investors that participated in the offer were a mix of the largest found across Europe, the Middle East, and the US. The demand was all the more significant given the highly publicised departure of Absa’s former CEO, Daniel Mminele, who resigned in April over differences concerning the future strategy of the group.
“There were questions concerning the departure. But the way in which the reasons for Daniel’s departure have been communicated by the board helped to allay concerns, as did investors familiarity with Jason Quinn [Absa CFO and current acting CEO] and myself,” says Raju.
Raju says the highly rated SA banks, within the context of an emerging market sovereign that is noninvestment grade, makes any offering to raise dollars very attractive for international investors.
“Our banking industry, which includes our regulator, favourably compares with banks in the developed world in the eyes of investors. We also only require small amounts of foreign currency in our overall funding requirement, which makes Absa [and other SA banks] a very attractive proposition when we come to market,” says Raju.
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