21 May 2021
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.