In the corporate and investment banking world, success boils down to the number of deals a bank can assist with, advising on the structure of financial transactions, arranging with other banks to dish up the cash to be loaned, or lending finance itself. For these services, the bank receives a handsome fee.
Of course, strong deal activity is bolstered by strong economic growth — and well-thought-out economic policies from the government.
But when the economy stutters along, as it is doing in SA, where growth of just 2% is predicted for this year, deals are harder to come by. Combine this with sluggish business confidence — down even lower in the second quarter, according to the Rand Merchant Bank (RMB)/Bureau for Economic Research business confidence index — and it may seem that corporate and investment banking is a harder career than farming snails in the Kalahari.
Not so, says Emrie Brown, incoming CEO at FirstRand’s RMB division from October 1. She’s taking the helm as the government starts to warm to the idea of private investment in critical economic sectors.
“Deal flow is relatively strong,” she tells the FM. “There are always new themes coming to the fore.”
Brown, an alumna of the University of Pretoria and the former Rand Afrikaans University (now University of Joburg), has been in the trade for more than two decades. She will lead RMB after serving as head of its biggest profit-spinner, the banking division. This division is responsible for corporate transactional banking, investment banking and coverage.
Brown sees possible deals coming in from different flanks. One would think, for example, that rising interest rates and the fallout from the Russo-Ukraine war would dampen appetite for deals. After all, the Reserve Bank has raised its repo rate four times, from 3.5% to its current 4.75%. But “the interest rate environment is still low”, says Brown, comparing current rates to those before the onset of Covid.
And the war, though obviously tragic, has shone a benevolent spotlight on the country. “For SA it is a good story,” she says. “It raised our prominence for emerging-market deal flow.”
Corporates know what their business should be, she says. And a big theme — one where RMB is cashing in — is environmental, social and governance (ESG) funding.
The bank has been a large funder of SA’s renewable energy independent power producer procurement programme (REIPPP). In its most recent reporting period, to end-December, RMB’s exposure to the renewable energy sector amounted to R15.3bn, or 1.1% of total group loans. This is against R16.6bn in loans to the fossil fuels sector (including natural gas), or 1.2% of total group loans.
RMB’s REIPPPP funding depends on the department of mineral resources & energy allocating licences for power generation. The sixth bidding window for these projects is trying to reach agreements on how the multibillion-rand construction of wind and solar sites will be funded.
“The last round of bidding was highly competitive,” says Brown. But RMB won’t be a funder, she adds. Bidders, especially, are struggling due to higher prices for component inputs.
That doesn’t mean RMB is outside the renewable power ring. It has secured “seven or eight mandates”, running into billions of rands each, to fund private power producers who are taking advantage of the government lifting the cap on private electricity generation to 100MW.
Still, RMB hasn’t ditched coal as it focuses more sharply on ESG investments. “Coal has stood SA in good stead,” Brown says, referring to the recent rally in coal prices in the wake of the war in Europe and the global oil supply squeeze. As commodity prices tanked broadly, the spot price of coal jumped. “The exports of coal [have] offset the rise in oil prices,” Brown says.
She sees opportunity outside the energy sector too. After all, the government’s turn to liberalisation hasn’t been limited to private power production, and she believes economic infrastructure — including ports, railways and water — should be the bank’s focus in future.
State-owned rail and port company Transnet, for one, has invited private rail operators to bid to use its Joburg-Durban and Joburg-Gqeberha lines for a two-year period up to 2024. It’s a move that has drawn criticism from industry participants, as the concession period is too short to recoup the capital investment in rolling stock and locomotives.
“Transnet is a client of ours,” Brown says, adding that the bank would like to play a similar role in discussions around the concession period as it did with the government’s renewable energy programme.
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