Absa Group raised US$500 million (R7 billion) in a landmark offshore Additional Tier 1 (“AT1”) hybrid capital bond issuance on 20 May.

Absa’s issuance represents the first ever US dollar-denominated Basel-3 compliant AT1 issue in the international capital markets from Africa. In April 2018, Absa priced its inaugural US$ Tier 2 capital issuance, another successful transaction which introduced the group to the international credit markets.

The 20 May transaction attracted investor demand of approximately US$3bn, more than seven times the target US$400m size that Absa had originally targeted. The overwhelming demand prompted Absa to increase its issuance to US$500m.

“Similar hybrid capital issuances have typically attracted oversubscription of around two to four times the deal size, suggesting that Absa’s AT1 issue was exceptionally well received by the international investor community,” said Deon Raju, Absa Group Treasurer. “What was particularly pleasing was the participation of over 200 global investors with the bulk of the transaction being placed with fund managers across the UK, Europe, Asia/Middle East and US, which has significantly diversified the Group’s investor base,” said Raju.

“We believe that the success of this transaction is testament to both the strength of Absa’s financial profile as well as the appeal of the South African banking sector to foreign investors, relative to other international regions,” said Jason Quinn, Absa Interim Group Chief Executive.

Following a strong first quarter trading update, the transaction was announced and marketed in virtual format, via a global investor call supplemented with a combination of individual and group meetings. More than 50 investors participated in the virtual meetings, from key centers across the globe. The positive investor feedback during the roadshow validated Absa’s confidence to formally launch the transaction on 20 May.

The issuance advances Absa’s ongoing capital management strategy, demonstrates its commitment to optimising its capital structure, diversifies its capital investor base and maintains the Group’s presence in the international capital markets.

“Absa has welcomed the pragmatic approach taken by the South African Prudential Authority in relation to Directive 2/2021, which has effectively allowed banks to access the international capital markets for AT1 capital, using terms which are closely aligned with the ZAR-denominated issuances in the domestic market,” said Raju.

Absa has been appointed as a mandated lead arranger, senior lender and hedge provider for one of South Africa’s largest Concentrated Solar Power (CSP) tower projects. The 100 MW CSP tower project, which uses molten salt technology and has 12 hours of thermal storage, will be built in the Northern Cape Province in South Africa at an estimated cost of R11.6 billion.

The CSP tower project, which is being developed by ACWA Power of Saudi Arabia, forms part of the South African Renewable Energy Independent Power Producers Procurement Programme (REIPPPP). It is believed to be one of the first such CSP project-financed transaction with molten salt central receiver technology in South Africa.

A CSP tower plant generates solar power using mirrors (heliostats) to concentrate a large area of sunlight onto a small area (the receiver). Electricity is then generated when the concentrated light is converted to solar thermal energy.

Absa’s Shaun Moodley, Resource & Project Finance Executive, says the Redstone CSP Project, to be built about 30km east of Postmasburg in the Northern Cape, will be one of the largest renewable energy investments in South Africa under REIPPPP. Moodley says Absa will participate in the overall senior debt financing package with approximately R1.5 billion of senior debt term facilities for the project.

“An important feature of the Redstone CSP project is that it will have 12 hours of full-load energy storage which will enable the CSP power plant to reliably deliver a stable electricity supply to more than 200 000 South African homes during peak demand periods, even after the sun has set,” says Moodley.

He says at least 2 000 direct jobs will be created during the construction phase, of which 400 jobs will directly benefit the local community, while over 560 jobs will be created over a period of time once the power plant is fully operational. Moodley says the socio-economic benefits of the project will also extend beyond job creation, because up to 40% of the required equipment and materials has to be procured locally.

Construction will take about 33 months. Thereafter, the power plant will be progressively commissioned to reach 100% of design capacity, which should be finally achieved over 365 consecutive days within a three-year period after the Commercial Operations Date (COD).

“Overall, one can see that this is a very important project not only from an energy perspective, but also in the form of both direct and indirect job creation. Absa is pleased to have been appointed as a mandated lead arranger for this project. We have strong appetite to finance commercially viable renewable energy projects in Africa and we have already established a track record in this area,” Moodley says.

“Absa has been a leading financier of renewable energy projects in Africa and we have so far arranged and provided more than R50 billin of financing for more than 30 such projects and we certainly have appetite for more, whether it is wind, solar PV, solar CSP, or biomass,” Moodley says.

Absa to Transform Finance and Procurement Processes in SA Following Successful Roll-out in Kenya

Absa Group says a programme that was initiated to transform finance and procurement processes as part of its digitisation journey has made significant progress as its Kenyan operations switched to an integrated, fully cloud-based solution last month. The programme will go live in South Africa next.

The programme, named Owari (signifying interconnectivity), is an initiative to ultimately standardise and transform Absa’s financial reporting and procurement processes across the 14 countries in which the group operates.

“Financial reporting and vendor processes are typically complex and onerous processes for multinational companies with legacy systems,” says John Annandale, Absa’s Group Financial Controller. “We are migrating all Absa entities onto a back-office finance and procurement template solution on fully integrated platforms, enabling us, longer term, to standardise and automate these processes,” he says.

Absa Group’s primary ledger as well as group reporting and consolidation will ultimately move to the new solution, improving controls and reducing risk by consolidating all financial data across finance, risk, and treasury functions.

The Owari programme delivered an integrated general ledger solution by integrating a SAP S/4 HANA enterprise resource planning system on AWS with Coupa, a Software as a Service (SaaS) spend management solution, in Kenya. The end-to-end solution is fully cloud-based, rather than residing in on-premises data centres. This means that the solution can be accessed online at any time from any location. Absa is increasingly adopting cloud-based computing in lieu of on-premises data centres, based on scalability, cost and efficiency benefits. 

“Establishing the new integrated solution, and as a fully cloud-based service, was a great challenge,” says Ebrahim Samodien, Chief Information Officer in the Absa Group technology office. “Many companies have struggled to transfer finance processes to the cloud as it is challenging from a data, technical and regulatory point of view. Owari was successful in Kenya as a result of the approach we took and the software and technology choices we made.”

Africa’s first certified green loan to Absa Bank Ltd, announced today by the International Finance Corporation (IFC), will increase funding for biomass and other renewable energy projects in South Africa. The loan will also support the country’s power sector and economic recovery from COVID-19. IFC is a member of the World Bank Group.

IFC will provide Absa, one of Africa’s largest financial services groups, with a loan of up to $150 million to support the bank’s strategy to expand its climate finance business and help South Africa meet its greenhouse gas reduction targets.

The loan is the first certified loan in Africa that complies with the Green Loan Principles. This means that lending by Absa for green projects will be disclosed, improving transparency and encouraging other banks to follow the principles. In addition to the loan, IFC will provide technical advice and knowledge sharing to help the bank develop a green, social and sustainable bonds and loans framework.

“Africa’s green transition requires considerable mobilization of funds,” said Jason Quinn, Absa Interim Group Chief Executive. “The agreement with IFC bolsters our funding available for green projects and strengthens Absa’s position as a leader in financing renewable projects in South Africa,” he said. Absa is the leader in arranging financing for South Africa’s Renewable Independent Power Producer Programme, having structured and arranged financing for approximately 46% of projects concluded under the programme to date.

“Financial institutions and the private sector have an important role to play helping South Africa to rebuild greener and more sustainably from the impact of COVID-19,” said Adamou Labara, IFC’s Country Manager for South Africa. “By increasing funding for renewable energy and climate smart projects we can help South Africa strengthen its climate change resilience and increase climate change adaptation.”

South Africa has set the goals of reducing its greenhouse gas emissions by 42% by 2025 and its reliance on coal by 2050. Today, 90% of the country’s electricity is generated by coal-fired plants. 

IFC estimates that there is a $588 billion investment opportunity in climate mitigation across selected sectors in South Africa between now and 2030. The project with Absa is in line with a climate initiative IFC launched in January 2020 to help financial institutions in South Africa, Egypt, Mexico, and the Philippines to mobilize private sector financing for climate mitigation and adaptation projects, and help align financial-sector strategies with Paris Climate Agreement targets.

In South Africa, financial institutions are critical sources of climate finance, with commercial banks currently providing 67% of the financing for renewable energy projects.

This is IFC’s fourth investment dedicated to green finance in South Africa’s financial sector.

Following three consecutive months of improvement, the seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined slightly to 56.2 index points in April from 57.4 in March. Despite the modest pullback, the index is now about 2.5 points above the average recorded in the first quarter of the year and about 26 points above the April 2020 reading recorded during the strictest phase of South Africa’s lockdown. 

Encouragingly, for the first time since early 2012, all five subcomponents of the PMI were in positive terrain. Even the subcomponent most often trailing below the 50-point mark, the employment index, managed to increase to well above 50 in April. It is too early to tell whether this points to a sustained improvement in job creation in the manufacturing sector, but it is a positive development nonetheless.

Business activity continued to increase in April, albeit at a much slower pace compared to the previous month. The index fell back to 50.8 points in April from 56.1 in March. New sales orders remained robust, although also increasing at a slightly slower pace than in March, with the index declining from a solid 60.4 points to 58.7. Purchasing managers continued to report improved export sales. Export-orientated manufacturers could continue to benefit from the global economic growth recovery, which is expected to accelerate through the remainder of the year. Indeed, led by a booming US economy, prospects for the global economy have brightened further of late. This could, in part, explain why respondents turned notably more upbeat about expected business conditions in six months’ time. The index rose to a three-year high of 67.9 index points from an average of 58.5 points recorded in the first quarter of 2021, and a dismal 27.3 points seen this time last year. Furthermore, although the risk of a third wave of COVID-19 infections remains present, relatively low increases in new local infections during the month may have also underpinned the recovery in sentiment. This does mean that should virus metrics turn less favourable, sentiment could sour once again.

Another factor that could quell sentiment is the continued increase in cost pressures. The purchasing price index came down slightly from a five-year high reached in March, but remained elevated. The rand exchange rate strengthened slightly compared to March, which could have helped with the costs of imported raw materials and intermediate goods. However, this was countered by a sharp increase in the fuel price at the start of the month. Prices of some key input goods have also trended upwards of late and with a low COVID-induced base set in 2020, annual producer prices are set to increase markedly in the next few months.

• Absa PMI April 2021
• PMI April Infographic 2021

Absa Group Limited has appointed Deon Raju as Chief Risk Officer, with effect from 1 June 2021. Deon is currently Absa Group Treasurer, primarily responsible for the liquidity risk, funding, capital, and non-traded market risks of the Group.

He has been with Absa for more than 20 years, having held roles in Enterprise Risk, Finance, Investment Banking, Credit Portfolio Management and Global Markets. He is a seasoned banking professional with deep institutional knowledge of the Group, as well as extensive and diversified banking experience in business, finance and risk management. 

Raju is a Chartered Accountant and a Chartered Financial Analyst. He holds a BCom (Honours) from the University of Natal and is currently completing an MSc in Finance at the University of Michigan (Dearborn).

“Deon’s experience adds to the strength of the Group’s executive leadership team, and his appointment speaks to growing talent from within our Group,” said Jason Quinn, Absa Interim Group Chief Executive. 

Parin Gokaldas, who has also been with our Group for almost 20 years in a variety of senior roles, will take over from Raju as Group Treasurer. Gokaldas, currently head of Treasury Execution Services, will report to Punki Modise, who has been appointed Absa Interim Group Financial Director.

• Ms Punki Modise CA (SA), appointed Interim Absa Group Chief Financial Officer
• She becomes an executive director on the boards of both Absa Group and Absa Bank
• A seasoned banker, Modise has served Absa as CFO: Retail and Business Bank, Head: Transactional Banking, CFO: Distribution Channels and CFO: Card and Consumer Finance
• She spearheaded Absa’s R9.8 billion comprehensive Covid Payment Relief Programme

Absa Group Limited has appointed Punki Modise as interim Financial Director of Absa Group and Absa Bank, respectively. As such, she becomes an executive director on the boards of Absa Group and Absa Bank with immediate effect, subject to regulatory approvals. The announcement follows the appointment of Jason Quinn as interim Group Chief Executive on 20 April 2021.

Punki is a highly skilled banking and financial management leader with years of experience at Absa and across the financial services sector. Having joined Absa in 2008, she has played an instrumental role in leading Absa through its key strategic journeys, most notably the reset of the strategy of our largest business, RBB South Africa, in 2018, which has since demonstrated a sustained improvement in underlying momentum. She also successfully steered RBB South Africa through the pandemic and initial lockdown by leading a multidisciplinary team of experts who delivered the most comprehensive Covid-19 payment relief programme, with the highest take-up in the industry,” said Quinn.

As RBB CFO, Modise also played a shaping role in the development and execution of the current RBB strategy, launched in 2018, which has stemmed the 10-year overall business losses.

“Having worked closely with Punki over many years, I have first-hand experience of her outstanding strategic management skills, trademark enthusiasm and efficiency. I look forward to the positive contribution she will make,” said Quinn. 

Her previous roles include: Head: Transactional Banking, Chief of Staff: Retail Banking, and Chief Financial Officer: Distribution Channels. Prior to joining Absa, she held positions at Standard Bank and Fedsure, having completed her articles at PricewaterhouseCoopers Inc. 

Modise holds a BCom degree from the University of the Witwatersrand, as well as a Masters Degree in Financial Management from the University of Johannesburg. She is a qualified Chartered Accountant of South Africa.

The Absa Group Board and the Group Chief Executive, Daniel Mminele have come to an agreement pursuant to which he has stepped down as a director and Group Chief Executive and will be leaving the group with effect from 30 April 2021. The parties have not managed to achieve alignment in relation to the group’s strategy and the culture transformation journey.

Mr Mminele joined the Group as Group Chief Executive on 15 January 2020 and led the Group through the Covid-19 crisis and its response thereto. Last year, Absa delivered a comprehensive customer and client relief package, and provided support and relief to public health authorities and communities respectively across all its African markets, while delivering a resilient and respectable financial performance under difficult conditions.

“The Board was very excited about Daniel’s appointment and the positive role he was going to play at Absa. It is a matter of considerable regret that we reached this position. The parting of ways merely reflects divergent professional views and approaches, and is on a “no fault” basis. The board has conveyed to Mr Mminele its continued high regard for his competence and integrity. The parties believe that this course is in the best interests of the company and Mr Mminele. This was a very difficult decision that was not reached lightly,” said Absa Group Chairman, Wendy Lucas-Bull.

“Daniel and Absa have agreed that their interests are best served by this parting, with an appropriate separation arrangement. I would like to thank Daniel for his service, leadership and the contribution he made in a time of great challenge for the Group and society more generally during the pandemic. We wish him all the best in his future endeavours,” she said.

“It is indeed regrettable that we should have had to part ways so soon on our journey. It is, however, important for the Chief Executive to be in complete alignment with the board on critical issues such as strategy and culture. I became enamoured of the brave, passionate and ready people of Absa and wish the group well for the future,” said Daniel Mminele.

The Board has appointed Jason Quinn, Absa Group Financial Director, as the Interim Group Chief Executive with effect from 20 April.

Absa Group, one of the largest financial service providers in Africa, has launched a cloud incubator initiative in collaboration with Amazon Web Services Inc. (AWS), a leading cloud services provider, to enhance its cloud computing skills across its operations in Africa.

As one of the largest cloud adopters in Africa, Absa is promoting cloud fluency as part of its broader efforts to promote learning, experimentation and innovation across the organisation to enhance the banking experience for its customers.

By migrating to the cloud, companies can eliminate the expense of building and managing on-site data centres while gaining the ability to reduce infrastructure costs and scale up and down rather than paying for excess on-premises capacity.

“Cloud is rapidly becoming the norm for large companies, a trend that was accelerated by the COVID-19 pandemic, which prompted a step-change in digital solutions,” said Andrew Baker, Absa Group Chief Technology Officer. “Using cloud allows us to store much more data cost-efficiently, compared with physical data centres. Cloud has already improved our ability to manage and access data and will enable us to bring products to market faster.”

World Wide Worx’s ‘Cloud in Africa 2020’ report reveals that 84% of African organisations surveyed viewed cloud computing as cost-effective. Cloud investment is expected to increase significantly this year, with 56% of respondents estimating that a quarter of applications will have moved to the cloud by the end 2021, according to the report.

To support its cloud transformation, Absa has launched an internal cloud incubator programme to participate in AWS’s Skills Guild initiative, a comprehensive cloud skills training programme designed to help large enterprise organisations accelerate their cloud adoption journey and build cloud fluency for their employees. The cloud incubator initiative will equip more than 1 500 staff across Absa’s African operations with advanced cloud computing skills this year.

“The AWS Skills Guild offers enterprises a comprehensive approach to organisation-wide cloud enablement, and is designed to not only impart cloud skills, but create excitement, momentum, and accelerate paths to innovation. AWS Skills Guild is based on our experience building enterprise-wide skills transformation plans for our customers across the globe, including National Australia Bank, Deloitte, Kmart Group, and many more,” explains Chris Erasmus, Commercial Sector Leader for AWS in South Africa.

A key outcome for Absa’s internal cloud incubator participants is that they will be able to identify cloud opportunities within their businesses, and create more efficient, scalable services and solutions. Employees will have the confidence to innovate faster and experiment more to drive broadscale digital transformation across the business.

“Accelerating cloud adoption will have a significant impact on Absa’s ability to innovate, offer new value propositions, and play a meaningful role in our customers’ and clients’ experiences,” said Baker.