Uncertainty hits empowerment
REGULATORY uncertainty and the effects of several black economic empowerment (BEE) deals unwinding have contributed to the decline in BEE transactions, says Thembeka Capital’s newly appointed managing director, Sumara Totaram.
Thembeka Capital is a 51% black-owned company and an empowerment partner to the Stellenbosch-based PSG Group, which holds the remaining stake.
Totaram now manages a portfolio of investments with stakes in companies including Pioneer Foods, MTN, Capitec Bank and Curro Holdings.
Speaking at PSG Group’s annual meeting two weeks ago, Totaram told shareholders that the investment holding company, which has a R50-million arsenal for acquisitions, planned to enhance its BEE footprint, but the lack of certainty about the implementation of new legislation was proving to be a challenge.
Totaram says that the introduction of the Department of Trade and Industry’s (DTI’s) revised broad-based black economic empowerment codes of good practice and the amendments to the BEE legislation had introduced a level of uncertainty.
“At the moment, we simply don’t know what impact both the codes and the amended act will have on future transactions, but it may lead to companies slowing down the rate of empowerment transactions,” says Totaram
According to the DTI, both the codes and the amendments to the act are aimed at improving the levels of black ownership in the economy.
One area of concern for established business involved the principle of “once empowered, always empowered”.
Under this principle, a company is allowed to retain its empowerment credentials even after its empowerment partners have sold their equity.
With the unwinding of several transactions in the past few years, companies have had to weigh up the prospects of doing another round of BEE and gaining short-term benefits versus the long-term dilution costs to existing shareholders.
“While there appears to be consensus in the marketplace when it comes to the moral imperative of empowerment, companies that I speak to are reluctant to commit to concluding new transactions because they’re worried about the status of their credentials once the empowerment partners realise value and exit the business,” says Totaram.
“That’s why there’s been a shift to setting up staff trusts, which allow for the creation of a permanent empowerment structure.”