THERE are serious risks to South Africa’s transformation, especially at an economic empowerment level. It is increasingly worrying that shares worth billions of rand and earmarked for the previously disadvantaged are making their way back into the hands of previously advantaged entities.
It raises questions about whether black economic empowerment (BEE) was just intended to give black people a temporary holding in white-owned companies, after which the shareholding would revert to previously advantaged entities.
Judging by events that have unfolded in BEE, one has to wonder whether, 21 years down the line, it is correct for black people to reduce their hard-fought ownership in established JSE companies to just cash.
If that is the case, should we then accept that cashing out translates to reduced black ownership in established companies, or are there alternatives in which black participants can cash in while also keeping their cash?
As we know, it is the season of maturity for black empowerment deals in the financial sector, many done about 10 years ago. The only shareholders crying are those who invested in African Bank Investment Limited’s Eyomhlaba and Hlumisa schemes. Beyond those, we have generally seen money being made, and I’ll give some examples.
If we look at ownership versus value created, there is a trend of cash coming while ownership is diluted. This is not to say people should be locked in forever. Of course value has to be unlocked.
But should we accept that unlocking value necessarily means reduced black ownership?
I don’t think so, because I doubt black empowerment was simply about giving black people cash.
Ownership is a key component of transformation. It is owners of a company who can make decisions that are the key to transformation. If that ownership falls away, then black power in companies is reduced, therefore slowing down transformation.
An example in financial services is that black shareholders who serve on boards have been instrumental in driving transformation by encouraging the companies to offer financial services in areas previously neglected.
That agenda has not been fully realised, though inroads have been made.
What are the chances of further progress when black shareholders are selling at the expense of ownership?
When the black holding at FirstRand matured, black ownership was valued at more than R20-billion and was about 8.1% of the group.
The empowerment beneficiaries include the Mineworkers Investment Trust, WDB, Kagiso Charitable Trust, FirstRand Empowerment Foundation and employee share trusts.
Most of the beneficiaries, save for some employees, have disciplined themselves and will not cash out until 2018. Some employees have cashed more than R3-billion, reducing the BEE ownership in the group to 6%.
Could something have been done to maintain the black ownership?
Yes. Black entities in South Africa know it is the season of maturity at FirstRand and are not on standby to take over the shareholding from fellow blacks. This lack of planning is compromising black ownership. The fact that the previously advantaged institutional shareholders invested at R46 a share when the black employees sold is a sign that there is still some value to be had.
Things could have been worse at FirstRand, but there were visionaries. Before the deal matured, Kagiso Tiso Holdings cashed out of the group last year but the Mineworkers Investment Company (MIC) picked up the shares, creating a classic black-to-black transfer. This time around, one cannot blame the MIC for not picking up the shares that the employees sold. They have done their job and I think other black participants should have picked up the shares to retain greater black control.
Think of the Sanlam BEE deal led by Patrice Motsepe’s Ubuntu-Botho. People have made cash and ownership is not being compromised, I am told. I was told by an insider that when black people sell, Motsepe earmarks some cash to pick up the shares from fellow black shareholders.
By the way, in 2004, the Sanlam BEE deal saw the Ubuntu-Botho consortium take up an initial 8% of Sanlam. When the deal matured in December 2013, the stake had grown to 14%.
I bet shareholders have made crazy amounts of cash through dividends and ownership has not been lost.
One will see where that ownership is when Sanlam releases its next annual report.
The other commendable effort to keep black ownership in established entities is that of Shanduka and Pembani. Shanduka could easily have been sold to a white entity. But there was foresight from Deputy President Cyril Ramaphosa and businessman Phuthuma Nhleko to do a black-to-black transfer of shares.
I’m told there is a BEE investment strategy between Anchor Capital and Cartesian Capital, where large funds are invested in BEE schemes such as Phuthuma Nathi, Sasol, MTN Zakhele, Yebo Yethu and so on. Such initiatives demonstrate foresight.
One hopes that when some people cash out at Standard Bank this year, and at Old Mutual and Nedbank, the black ownership will not be compromised and that black investors will come in as secondary investors.
Phakamisa Ndzamela is finance writer for Business Day
Was empowerment about giving black people cash?
It raises questions about whether black economic empowerment (BEE) was just intended to give black people a temporary holding in white-owned companies, after which the shareholding would revert to previously advantaged entities.
Judging by events that have unfolded in BEE, one has to wonder whether, 21 years down the line, it is correct for black people to reduce their hard-fought ownership in established JSE companies to just cash.
If that is the case, should we then accept that cashing out translates to reduced black ownership in established companies, or are there alternatives in which black participants can cash in while also keeping their cash?
As we know, it is the season of maturity for black empowerment deals in the financial sector, many done about 10 years ago. The only shareholders crying are those who invested in African Bank Investment Limited’s Eyomhlaba and Hlumisa schemes. Beyond those, we have generally seen money being made, and I’ll give some examples.
If we look at ownership versus value created, there is a trend of cash coming while ownership is diluted. This is not to say people should be locked in forever. Of course value has to be unlocked.
But should we accept that unlocking value necessarily means reduced black ownership?
I don’t think so, because I doubt black empowerment was simply about giving black people cash.
Ownership is a key component of transformation. It is owners of a company who can make decisions that are the key to transformation. If that ownership falls away, then black power in companies is reduced, therefore slowing down transformation.
An example in financial services is that black shareholders who serve on boards have been instrumental in driving transformation by encouraging the companies to offer financial services in areas previously neglected.
That agenda has not been fully realised, though inroads have been made.
What are the chances of further progress when black shareholders are selling at the expense of ownership?
When the black holding at FirstRand matured, black ownership was valued at more than R20-billion and was about 8.1% of the group.
The empowerment beneficiaries include the Mineworkers Investment Trust, WDB, Kagiso Charitable Trust, FirstRand Empowerment Foundation and employee share trusts.
Most of the beneficiaries, save for some employees, have disciplined themselves and will not cash out until 2018. Some employees have cashed more than R3-billion, reducing the BEE ownership in the group to 6%.
Could something have been done to maintain the black ownership?
Yes. Black entities in South Africa know it is the season of maturity at FirstRand and are not on standby to take over the shareholding from fellow blacks. This lack of planning is compromising black ownership. The fact that the previously advantaged institutional shareholders invested at R46 a share when the black employees sold is a sign that there is still some value to be had.
Things could have been worse at FirstRand, but there were visionaries. Before the deal matured, Kagiso Tiso Holdings cashed out of the group last year but the Mineworkers Investment Company (MIC) picked up the shares, creating a classic black-to-black transfer. This time around, one cannot blame the MIC for not picking up the shares that the employees sold. They have done their job and I think other black participants should have picked up the shares to retain greater black control.
Think of the Sanlam BEE deal led by Patrice Motsepe’s Ubuntu-Botho. People have made cash and ownership is not being compromised, I am told. I was told by an insider that when black people sell, Motsepe earmarks some cash to pick up the shares from fellow black shareholders.
By the way, in 2004, the Sanlam BEE deal saw the Ubuntu-Botho consortium take up an initial 8% of Sanlam. When the deal matured in December 2013, the stake had grown to 14%.
I bet shareholders have made crazy amounts of cash through dividends and ownership has not been lost.
One will see where that ownership is when Sanlam releases its next annual report.
The other commendable effort to keep black ownership in established entities is that of Shanduka and Pembani. Shanduka could easily have been sold to a white entity. But there was foresight from Deputy President Cyril Ramaphosa and businessman Phuthuma Nhleko to do a black-to-black transfer of shares.
I’m told there is a BEE investment strategy between Anchor Capital and Cartesian Capital, where large funds are invested in BEE schemes such as Phuthuma Nathi, Sasol, MTN Zakhele, Yebo Yethu and so on. Such initiatives demonstrate foresight.
One hopes that when some people cash out at Standard Bank this year, and at Old Mutual and Nedbank, the black ownership will not be compromised and that black investors will come in as secondary investors.
Phakamisa Ndzamela is finance writer for Business Day
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