a Bee in the bonnet
Not even the companies themselves know how empowered they are
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.