Investec became the latest South African bank to issue loss-absorbing debt as local lenders work to comply with the new central bank framework.
Its South Africa unit has issued R700 million ($43 million) through the new instruments that are known as funding for loss-absorbing capacity, or FLAC, notes.
They have a legal maturity of six years but are redeemable after five at Investec’s election, the lender said.
The notes were issued via private placements with South African institutional investors, Investec South Africa Treasurer Laurence Adams said in response to questions from Bloomberg.
The issue was benchmarked 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.
The issuance forms part of South Africa’s new 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.
South Africa’s biggest lenders have already raised $322 million in the new loss-absorbing debt. Standard Bank Group was the first to issue the new instruments, selling R2 billion of FLAC notes across four tranches, while Absa Group raised R3.2 billion.
The new framework aligns with global post-2008 reforms aimed at ensuring banking issues can be resolved without resorting to taxpayer bailouts.
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, with lenders expected to have at least 60% of that amount in place by the end of 2027.
“Investec’s full FLAC requirement is R20 billion to R30 billion,” Adams said.
“The bank will link timing of issuances with funding requirements, as modeled within our internally approved capital-markets funding plan.
BLOOMBERG
