2ND TIME LUCKY FOR SASOL?

Earl Warren, a US judge who lived until 1974, had this to say about banks: “I hate banks. They do nothing positive for anybody except take care of themselves. They’re first in with their fees and first out when there’s trouble.” While I don’t feel as strongly about the role of banks in society, there is a lot of truth in this. You could take Warren’s point further and add another reason to hate banks: they tend to always insist on making money whether the deal is good or bad for the investor they are funding. Take the case of Sasol Inzalo investors.

After putting in a minimum R18.30 to buy each Sasol Inzalo share in a R25.9bn deal in March 2008, all the BEE investors could do was to wait and hope their investment would appreciate significantly enough to pay off the debt they’d raised for the transaction.

The aim was to ultimately acquire a 10% shareholding in the group. For the transaction to work and investors to benefit, Sasol’s share price had to increase to over R462 in a decade.

For the bankers who funded the deal, there was no such worry: the preference stock issued to fund the deal carried a fixed preferred dividend of R16/share a year for the first three years to June 2011. Thereafter the dividend payments would increase to R22 to June 2014, and finally to R28 up to June 2018.

Because things were going right for the oil price on which Sasol’s fortunes rest, everybody assumed things would always go well. Not quite, it turns out.

The oil price is only now edging in the direction of, hopefully, $100 a barrel some time next year. That is where it was in March 2008.

At R376 now, the Sasol share still has a long way to go to reach the promised land of R462.

This is not a problem shared by the bankers and the armies of lawyers who advised on the transaction. The lawyers and deal advisers collected their fees 10 years ago. The bankers are still owed about R12bn.

And the investors?

They have received not a cent in dividends. In 10 years. They are left high and dry, holding on to what is for all intents and purposes a worthless piece of paper.

Of course Sasol is not alone in this dilemma. Most of the BEE deals of the past 15 years have ended up benefiting only the lawyers, the deal advisers and the bankers. Some of the company executives who introduced them walked away with fat bonuses “for achieving a BEE milestone”.

Up in smoke

Sasol’s investors, however, are among the luckier

BEE investors. The company is trying again, and offering them incentives of bonus shares if they carry their investment into the new Khanyisa deal.

To soften the blow, Sasol will take the hit on the outstanding R12bn debt.

Those who invested in African Bank’s BEE schemes weren’t so lucky. Their investments went up in smoke. Only the bankers, lawyers and advisers, together with a large chunk of the management team, smiled all the way to the bank.

Sasol hopes to make it second time lucky with the Khanyisa revised BEE plan. The R21bn deal will now be at asset level. That would shield investors from reliance on the sentiment of the markets and the oil price. The deal will be funded through the cash flows of the SA unit. That exposes investors only to the established business principles of relying on the sales and profits of the organisation, rather than the shortterm whims of the market.

Hopefully this will herald the advent of a new and more sustainable BEE model. But I, for one, also hope that will expose some of the funders to some of the downside as well.

The lawyers and advisers collected their fees 10 years ago. And the investors? They have received not a cent