a Bee in the bon­net

Not even the com­pa­nies them­selves know how em­pow­ered they are

Finweek English Edition - - Front page -

Not even the com­pa­nies them­selves know how em­pow­ered they are

DE­SPITE THE HIGH PROFILE now en­joyed by the con­cept of black eco­nomic em­pow­er­ment, there’s very lit­tle con­crete ev­i­dence to as­sess its sta­tus with re­gard to JSE-listed com­pa­nies. In an at­tempt to il­lu­mi­nate this im­por­tant is­sue Fin­week re­cently re­searched the share reg­is­ters of the JSE’s top 40 com­pa­nies – and hit the prover­bial brick wall. The process re­sem­bled a drawn-out, un­de­cided cricket test.

Two sim­ple ques­tions were posed to com­pany sec­re­taries or in­vestor re­la­tions de­part­ments:

What’s the per­cent­age of South African ver­sus off­shore share­hold­ers?

What per­cent­age of your share­hold­ing is em­pow­er­ment re­lated?

Dis­cov­er­ing the South African share­hold­ings was quite sim­ple, as the share reg­is­ters con­tain the ad­dresses of share­hold­ers. How­ever, de­ter­min­ing the race of share­hold­ers was a dif­fer­ent mat­ter. Not one in­sti­tu­tion – from the JSE to Strate or reg­is­trars such as Com­put­er­share – could pro­vide re­li­able data to racially clas­sify share­hold­ers.

De­spite the dif­fi­cul­ties en­coun­tered, of the 40 com­pa­nies 23 gave some in­di­ca­tion of their em­pow­er­ment sta­tus; four com­pa­nies’ op­er­a­tions were mostly over­seas and their em­pow­er­ment sta­tus was there­fore not ap­pli­ca­ble. Rem­gro and SABMiller didn’t re­ply to our re­quests; nor was the in­for- ma­tion avail­able in their re­spec­tive an­nual re­ports. The re­main­ing com­pa­nies couldn’t in­di­cate a di­rect em­pow­er­ment own­er­ship sta­tus, as some had con­cluded trans­ac­tions at a sub­sidiary level or hadn’t done a deal at all. In­di­ca­tions are that Stein­hoff, Wool­worths, Pick ’n Pay, JD Group and Mit­tal Steel will – af­ter PPC and Bar­loworld – be next in line to an­nounce an em­pow­er­ment deal.

Most of the com­pa­nies ex­plic­itly stated that it was and will re­main im­pos­si­ble to give their true em­pow­er­ment own­er­ship as there was no way of dif­fer­en­ti­at­ing be­tween share­hold­ers on the ba­sis of race. Share­hold­ing that changes on a daily ba­sis and in­di­rect share­hold­ings fur­ther com­pli­cate the mat­ter.

At the time of writ­ing, of the com­pa­nies that did re­spond, In­vestec seems to be the most em­pow­ered, with em­pow­er­ment hold­ings of 25,1% af­ter its May 2003 deal with the Tiso Group, Peu In­vest­ment Group, broad-based and em­ployee share trusts. The Pub­lic In­vest­ment Cor­po­ra­tion (PIC) fa­cil­i­tated a loan to the con­sor­tium and at the out­set it was fore­cast that those shares would be­come un­en­cum­bered in eight years.

The most com­pre­hen­sive at­tempt to quan­tify its em­pow­er­ment share­hold­ing was made by San­lam. First, San­lam has Ubun­toBotho In­vest­ments as a 9,66% em­pow­er­ment part­ner. Sec­ond, it tried to clas­sify its 567 000 in­di­vid­ual share­hold­ers rep­re­sent­ing 17% of its share­hold­ing. San­lam has in­for­ma­tion

col­lated from pol­icy records and per­sonal data dat­ing back to 1998 from which a share­holder’s race could rea­son­ably be es­tab­lished. At that stage the best es­ti­mate in­di­cated that 16% of all in­di­vid­ual share­hold­ings were black. Ap­ply­ing that same ra­tio of 16% or 17% gives an in­di­vid­ual black share­hold­ing of 2,7%.

San­lam looked at the deals it has done at sub­sidiary level, par­tic­u­larly prop­erty trans­ac­tions, which add around 1,25%. A fur­ther 1,2% is added by look­ing through the own­er­ship profile of other in­sti­tu­tional in­vestors, as al­lowed by the codes. Con­se­quently, San­lam’s di­rect black share­hold­ing comes to around 15%.

San­lam also asked the com­plex ques­tion: “When can a pen­sion fund be clas­si­fied as black?” The com­pany then used its dis­cre­tion to clas­sify pen­sion funds as white or black. Based on its es­ti­mate, black in­di­rect share­hold­ers have a 16,7% share­hold­ing in San­lam, with the PIC (14,6%) the largest share­holder.

Helet Mal­herbe, of San­lam in­vestor re­la­tions, says: “San­lam has now also taken the step of com­mis­sion­ing in­de­pen­dent re­search into the profile of its in­di­rect share­hold­ing (re­ferred to in the De­part­ment of Trade & In­dus­try codes as ‘man­dated in­vest­ments’)”.

San­lam hopes that this ex­er­cise may con­trib­ute to help­ing both it­self and the mar­ket bet­ter un­der­stand the de­mo­graph­ics of in­di­rect share­hold­ing, though at this stage it’s still un­cer­tain whether it’ll be prac­ti­cal to mea­sure that ac­cu­rately on an an­nual ba­sis.

Polo Radebe, act­ing di­rec­tor of em­pow­er­ment at the DTI, says en­ti­ties with a 50%+1 vote share­hold­ing will be con­sid­ered to be a 100% em­pow­er­ment in­vestor in an­other com­pany.

Multi­na­tional com­pa­nies’ re­sults may be de­ceiv­ing when look­ing at their eq­uity own­er­ship and em­pow­er­ment sta­tus. They can be di­vided into three broad cat­e­gories: multi­na­tion­als that have never head­quar­tered in SA, those with roots in SA (SABMiller, An­glo Amer­i­can) and those still head­quar­tered in SA (Bid­vest). They’re re­quired to trans­form by sell­ing SA or in­ter­na­tional eq­uity or as­sets or to ne­go­ti­ate an “eq­uity equiv­a­lent” (not for com­pa­nies with SA roots). Con­se­quently, most of the SA listed com­pa­nies con­cluded their trans­ac­tions on an SA sub­sidiary or as­set level.

The most re­cent ex­am­ple was Naspers (owner of Fin­week) with two em­pow­er­ment deals. In its Wel­come Yizani ini­tia­tive, Me­dia24 sold 15% of its shares to 107 000 in­di­vid­u­als and 1 450 groups of em­pow­er­ment share­hold­ers who ap­plied.

Naspers’s Mul­tiChoice SA deal – called Phuthuma Nathi – also in­volved 15% of its share­hold­ing and will ben­e­fit no less than 98% of 119 000 in­di­vid­u­als and 1 800 groups who ap­plied. It’s es­ti­mated that more than 100 000 pre­vi­ously dis­ad­van­taged in­di­vid­u­als will ben­e­fit from both trans­ac­tions. Mul­tiChoice SA’s em­pow­er­ment share­hold­ing should in­crease to 22,5% af­ter the re­or­gan­i­sa­tion of MNet/Su­perS­port fol­low­ing the John­com trans­ac­tion.

Old Mu­tual plc also made a sig­nif­i­cant deal in 2005 when it sold 13,48% of Old Mu­tual SA, 11,5% of Ned­cor SA and 11% of Mu­tual & Fed­eral to em­pow­er­ment share­hold­ers. That deal, val­ued at R7,2bn, will ben­e­fit an es­ti­mated 900 000 em­ploy­ees, dis­trib­u­tors, com­mu­ni­ties and em­pow­er­ment part­ners.

An­glo Amer­i­can’s ma­jor listed sub­sidiaries –An­glo Plat­inum, An­gloGold Ashanti and Kumba Re­sources – have en­gaged in em­pow­er­ment trans­ac­tions. The high­light is prob­a­bly the 66,2% held Kumba Re­sources, where the com­pany was split into Kumba Iron Ore (a fo­cused iron ore player) and Exxaro Re­sources, which rep­re­sents most of Kumba’s other min­eral min­ing ac­tiv­i­ties.

At the time of our sur­vey, In­vestec was the most em­pow­ered com­pany. Kumba’s un­bundling, which cre­ated Exxaro and Kumba Iron Ore, used the codes clev­erly, giv­ing Exxaro a BEE in­ter­est of 55%, thereby mak­ing it the most emow­ered com­pany.

An­gloGold Ashanti re­cently con­cluded an em­pow­er­ment deal in which the equiv­a­lent of 6% of its SA op­er­a­tions was trans­ferred to mi­nor­ity groups, in­clud­ing em­ploy­ees. Com­pany sec­re­tary Lynda Eatwell says ear­lier as­sets rep­re­sent­ing a fur­ther 20% of its SA as­sets were placed in the hands of em­pow­er­ment com­pany Armgold.

An­glo Plat­inum sold 15% of its Union Mine to em­pow­er­ment play­ers.

Un­for­tu­nately, no win­ner or loser can be de­clared – ei­ther now or in the fu­ture. While leg­is­la­tion still needs to be fi­nalised – and prob­a­bly has to be up­dated as more prac­ti­cal nu­ances oc­cur – it’s still a long way be­fore black em­pow­er­ment will be embed­ded.

Radebe says that em­pow­er­ment leg­is­la­tion might have to be amended to com­pel com­pa­nies to ad­here to the codes of good prac­tice. “The Act doesn’t em­power us to take ac­tion against a com­pany that re­fuses to recog­nise the codes. That’s why we con­sider giv­ing it more teeth,” she says. Cur­rently, only com­pa­nies do­ing busi­ness with Gov­ern­ment can be pun­ished if they don’t com­ply with the codes.

For most com­pa­nies, eq­uity own­er­ship was the start of their em­pow­er­ment ini­tia­tives and they wrongly be­lieved that once they trans­ferred some own­er­ship to an em­pow­er­ment part­ner they were code com­pli­ant. That eq­uity was usu­ally not sur­ren­dered and

em­pow­er­ment part­ners were heav­ily in­debted by the deals. How­ever, in the latest Codes of Good Prac­tice eq­uity own­er­ship of 25%+1 vote only amounts to 20% of the generic score­card and points may in­deed be lost if the eq­uity own­er­ship is en­cum­bered.

On the other hand, the only long-term mea­sure of em­pow­er­ment suc­cess will be the un­en­cum­bered own­er­ship of a size­able eq­uity own­er­ship in a com­pany. Things such as man­age­ment con­trol, em­ploy­ment eq­uity, skills de­vel­op­ment, pref­er­en­tial pro­cure­ment, en­ter­prise de­vel­op­ment and so­cioe­co­nomic de­vel­op­ment will fol­low.

Polo Radebe

Helet Mal­herbe

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