Some of SA’s oldest and most respected empowerment vehicles say they are fighting for survival after the commission tasked with monitoring empowerment transactions indicated that it regarded them as ownership fronts and not genuine black owners.
The question mark over their empowerment status, first raised by the Broad-based BEE (BBBEE) Commission in April 2019, has affected the empowerment scoring of both old and new transactions, affected licence applications for investee companies and acted as a disincentive to market participants to team up with the entities.
The affected entities include a number of vehicles established in the 1990s that have charitable, targeted beneficiary or employee trusts as part of their ownership structure. This was in line with the early objectives of BEE, which sought to spread the benefits of investments in the market as widely as possible, and came before BEE legislation — in particular the amendments made in 2013.
The Kagiso Charitable Trust, the Mineworkers Investment Trust, HCI, the WDB Trust, Ditikeni Trust and Wiphold Trusts are among those that appealed to the minister of trade, industry & competition, Ebrahim Patel, more than a year ago to gazette a clarification that broad-based ownership schemes are legitimate black owners.
The trusts have now decided to speak out publicly after their attempts to engage with Patel appear to have failed.
In response to questions on Monday, departmental spokesperson Sidwell Medupe said in a brief statement that it “affirms that we recognise the use of broad-based ownership scheme structures for BBBEE ownership”. But neither Patel nor the department would commit to publishing the clarification notice the schemes seek. This was still under consideration, said Medupe.
By contrast, the head of the commission, Zodwa Ntuli, outlined in detail the reasons broad-based ownership schemes were not acceptable black ownership. The commission’s role is to monitor empowerment transactions and aims specifically at rooting out fronting. “The main concerns with some of the broad-based structures include failure to show the ‘black people’ that are owning the shares through these vehicles for us to be able to confirm the shares to be black-owned,” said Ntuli.
As the individuals could not be pointed out, this was not effective ownership. As the trustees restricted the direct flow of dividends, individuals were mere beneficiaries rather than being “owners”, she said.
“Also, the participation by black people, if any, is limited to the scheme level and not at the measured entity that claims black ownership on its scorecard. Black people in some of the schemes do not even know their ownership status or what the portion of interest they are entitled to is, which is against the rules,” said Ntuli.
Mary Bomela, the CEO of the Mineworkers Investment Company (MIC), which is owned by the Mineworkers Investment Trust, said all the trusts concerned have proper projects with identifiable beneficiaries.
“It is difficult for us to be cast in the same light as trusts that are fronting, which we do not condone,” she said.
“This has left everyone in limbo. We disagree with her [Ntuli’s] interpretation. Trusts never have shareholders, they have beneficiaries. The clarification from minister Patel is critical for us.”
The Ditikeni Investment Company, which is owned by a trust established by community organisations in 1999, says about a third of its net assets — R70m — is at risk of forced sales.
For example, a BEE consortium in which it is a part has been judged to be non-compliant with BEE ownership requirements. As the company involved requires a licence from the state to operate and is now no longer compliant, Ditikeni may be forced to sell.
Ditikeni adviser Gordon Young said that realistically the company could not transact until this issue was resolved.
“Our relationships with our existing investment partners are compromised; our relationship with our ratings agency is compromised; and there is the real possibility of forced sales, which will be highly prejudicial,” said Young.
Ntuli said that any entity that did not agree with the commission on a decision was free to approach the courts for a declaratory order or to take a decision on review.
- This story was written by Carol Paton, and appeared in Business Day newspaper on Tuesday 24 November 2020. It was also published on their website at this link.