BBBEE transactions important for transformation, but new rule could challenge implementation

There is no question broad-based black economic empowerment (BBBEE) transactions are important to achieve SA’s transformation objectives.

However, says the 2022 Sanlam Gauge report, there is concern that their implementation has become more challenging with the introduction of a BBBEE Commission requirement that all deals exceeding R25m be registered for them to be regarded as compliant.

Before the introduction of this rule, deals simply had to be agreed between the concerned parties. 

On the upside, a practice note from minister of trade, industry and competition Ebrahim Patel in May 2021 addressed the misalignment between the BBBEE Commission, verification agencies and BBBEE advisers regarding how they interpreted BBBEE legislation, particularly around ownership recognition, reveals the report. 

In 2021/22 36 black empowerment transactions were recorded, with SAB’s new Zenzele Kabili scheme and Old Mutual’s R2.8bn transaction standing out, adds the report.

The SAB deal, valued at R5.4bn, replaced the expired 2010 Zenzele transaction.

The successful latter deal, which reached maturity of R9.7bn, was the largest BBBEE value creator in the fast-moving consumer goods industry, says the report. It includes an employee ownership scheme for qualifying SAB staff members, with the entity making an equity contribution to the transaction and providing vendor finance on attractive terms.

Sanlam and Absa’s asset-management business, which led to the formation of Sanlam Investment Holdings, resulted in what is considered one of the biggest black-empowered asset-management companies in SA

The Old Mutual deal, announced earlier this year and which includes employees, black members of the public and a community trust, is intended to increase the company’s black ownership from 25% to more than 30%.

The report says Old Mutual will provide notional vendor funding to employee and community trusts, as well as funding to the special-purpose vehicle that will facilitate public investment. The transaction has yet to receive shareholder and regulatory approval. 

Other significant transactions, says the report, include the sale by BP Southern Africa’s liquid bulk fuels import terminal at the Port of East London to black, women-owned and managed independent petrochemicals company Wasaa. Then there’s Capitec’s R1bn B-BBEE employee share scheme, aimed at rewarding staff who have been permanently employed by the group for at least three years.

Capitec says the deal aligns the interests of employees and shareholders, and improves the bank’s BBBEE ownership status. At the same time, 10,500 employees will now able to call themselves shareholders. 

Sanlam and Absa’s asset-management business, which led to the formation of Sanlam Investment Holdings, resulted in what is considered one of the biggest black-empowered asset-management companies in SA. This after it signed a BBBEE deal with African Rainbow Capital boasting more than R1-trillion in assets under management.  

Sanlam group CEO Paul Hanratty believes asset management is one of the most effective ways to drive inclusion and growth. As a group Sanlam exceeds its industry targets with 49% black ownership and 23% black female ownership, says the report.

Another notable deal, delayed by the Covid-19 pandemic, was Imperial Logistics, which gave three empowered entities, Willowton Group, Afropulse and Converting Trade, a 25% stake in Imperial Logistics Group SA. They will be represented on the Imperial Logistics board and be involved with driving the strategic growth of the business. 

A deal that made headlines last year for its failure to take into consideration employee ownership was the acquisition of Burger King from Grand Parade Investment to US private equity firm Emerging Capital Partners.

The transaction was initially blocked by the Competition Commission because the proposed sale would significantly reduce shareholding of historically disadvantaged individuals. The commission has since reversed its decision, but imposed strict conditions on the merger, says the report. 

It points out that each BEE deal has its own unique complexities and nuances. Successful deals tend to have three characteristics: strong operational or company performance, a funding rate that is reasonable and a transaction that is long-dated.

Despite a number of BBBEE empowerment transactions being announced in the past year, there is concern that most reflect passive black ownership. 

• This article was paid for by Sanlam.