April 7, 2004

By Edward West

Cape Town - Absa can now not only claim to be the biggest retail bank in South Africa, but also the most empowered.

Just six months after the release of the financial services charter, Absa yesterday become the first of the big four retail banks to sell the crucial 10 percent stake to an empowerment partner.

The empowerment consortium is called Batho Bonke and is led by Tokyo Sexwale.

The deal is worth about R3 billion on yesterday's market price for Absa's shares.

The share price reacted positively throughout the day and closed 1.15 percent firmer at R48.20, but was shy of the 2.23 percent rise in the banking sector.

Absa stressed that the deal was a business necessity and not solely the result of the financial services charter, which states that financial institutions must have a black shareholding of between 10 percent to 25 percent by 2008.

The deal, which needs shareholder approval, involves Batho Bonke subscribing for 10 percent of the enlarged share capital of Absa. Batho Bonke will get two board seats, with the portfolio of empowerment. Sexwale will retain his position as non-executive director on Absa's board.

The consortium will pay R146 million cash for the preference shares, which can be exercised only after three years. The option expires in five years. Once exercised they will become ordinary shares.

Batho Bonke will be represented by a Newco, which will be set up to represent the consortium, ensure the shares remain in black hands and vote on the consortium's behalf.

Absa wanted to issue shares to its employees and its new employee share ownership programme will subscribe for a further 1 percent of Absa's issued share capital.

Reg Rumney, the executive director of BusinessMap, a non-profit organisation that researches empowerment, said the financial model Absa had used was "a classic special-purpose vehicle", but there was "real value for shareholders once the share lock-up ends". 

He said the dilution for shareholders was small considering empowerment was critical for Absa, which had a great number of government clients insisting on the correct empowerment credentials.

Rumney said: "At least it is broad-based, involving a range of people."

Sexwale said the consortium had been sensitive to claims that empowerment was reaching only a few people and 50.1 percent of Batho Bonke's empowerment shareholding would be broad-based and comprise regional groupings, community trusts, black empowerment companies, women's groupings, rural formations and business associations.

The promoters of the deal - Mvelaphanda Holdings, Leslie Maasdorp, Nthobi Angel, community trusts, business people and charities - would hold the rest of the shareholding.

National co-ordinators for the deal will have to go to the various provinces and find more empowerment companies to pull into the action.

These co-ordinators are David Moshapelo, Pat Matosa, Kaobitsa Maape, Anthony Rooiland, Matthews Phosa, Manana Nlanhla, La-duma Tembe, Mkhuseli Jack and Tony Ruiters.

The deal means Absa will meet its financial charter targets ahead of time. By the end of 2008, for example one out of three board members will be black, with a minimum of 11 percent being black women.

With Angel and Maasdorp nominated to the board, black representation would be 28 percent, with 6 percent of them black women, four years ahead of the target date.

Independent research showed Absa had an indirect black shareholding of between 12 percent and 14 percent.

With this indirect holding and the Batho Bonke deal, Absa now substantially complies with the black ownership requirement of 25 percent.