South African banks raise $322m in debut rescue-debt issue
South Africa’s biggest lenders raised $322-million in new loss-absorbing debt to comply with a central bank framework designed to ensure failing financial institutions can be recapitalised without taxpayer bailouts.
Absa Group Ltd. raised R3.2-billion through the new instruments that are known as funding for loss-absorbing capacity, or FLAC, notes, the lender said in a statement Friday. They’re linked to Zaronia, the reference rate for short-term financial contracts that the central bank is introducing to replace the Johannesburg interbank average rate by year-end.
Investor demand exceeded expectations. Against a target of R3-billion, the auction drew R8.41-billion in bids, with the notes 2.65 times oversubscribed, Absa Treasurer Richard Klotnick said in the statement.
Rival Standard Bank Group Ltd. sold R2-billion of FLAC notes across four tranches. The offering attracted more than R10-billion in bids from over 30 institutional investors and marked the first public-note issuance conducted in Zaronia, the lender said Thursday.
The issuance forms part of South Africa’s new bank-resolution regime that requires systemically important lenders to build a buffer of debt that can be written down or converted to equity if they run into trouble.
The framework is broadly aligned with global post-2008 reforms aimed at ensuring banking issues can be resolved without resorting to taxpayer bailouts, shifting losses to investors rather than the state.
The central bank estimated in 2024 that the country’s six largest lenders may need to raise as much as R360-billion by 2030 to meet the requirements. Its plan allows part of a bank’s excess regulatory capital to count toward the FLAC target, with lenders expected to have at least 60% of the requirement in place by the end of 2027.
Moody’s Ratings has previously said the plan would be credit-positive for senior creditors.
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