Standard Bank’s BEE status hangs in the balance following its sale of a 20% stake to the Industrial and Commercial Bank of China (ICBC). It might be forced to do a second BEE deal to keep black ownership at current levels.
Should its black-owned shareholding drop to below 10%, it could be disqualified from claiming ownership points under the financial charter. This would disadvantage the bank where government business is concerned.
Although chief executive Jacko Maree is relying on the “once empowered, always empowered” principle, it is unclear whether Standard Bank will be able to beneÂfit from this rule once the Financial Services Charter is gazetted.
Cyril Ramaphosa’s Shanduka group and Saki Macozoma’s Safika are partners in the Tutuwa consortium, Standard Bank’s BEE partners. The consortium also includes a community trust and an employee share ownership scheme.
Tutuwa bought 10% of Standard Bank’s South African operations for R40,50 a share in 2004. A Fin24 report states that the BEE shareholders stand to make a collective R1,5billion from the sale of their shares as they — with the bank’s other shareholders — will sell 11,1% of their shares at R136 each.
Ramaphosa stands to make R61million as he holds 35,9% of Shanduka, which in turn has about 16million shares in Standard Bank.
Macozoma and Moss Ngoasheng, who each hold 20% of Safika, will benefit by R51million each as their company holds 24million Standard Bank shares.
A report by a Citigroup analyst says the bank’s BEE shareholders’ stake in its South African operations will drop to 8,9%. “This could mean that Standard Bank no longer meets the ownership requirements in terms of the charter and thus will not earn the 14 points up for grabs for ownership.
“Given that a few other requirements of the charter are difficult to meet, Standard Bank could struggle to get an ‘A’ rating in terms of the charter scorecard if it scores zero for ownership. This could cause the bank to lose out on new and existing business where empowerment credentials are important [all business done for government and related institutions],” the report says.
“We thus think it is probable that Standard Bank will have to do another empowerment deal or issue new shares to BEE shareholders to bring its BEE shareholding back to 10%. The cut-off date in terms of the charter is 2010, so we think Standard Bank cannot argue that it qualifies for the 14 points on the basis of the ‘once empowered, always empowered’ rule,” said the analyst. A second empowerment deal will result in further dilution for shareholders.
But Empowerdex’s Chia-Chao Wu said the bank’s empowerment status could actually increase. This is because the empowerment stake applies only to the bank’s South African operations. Foreign operations are excluded from the charter and the BEE Codes of Good Practice. If the bank’s foreign interests increase in relation to Standard Bank’s total value, the BEE stake will increase.
“In the immediate short term there will be some dilution of the BEE stake if there is no corresponding increase in Standard Bank’s foreign, mostly African, operations. If Standard Bank’s non-South African operations have increased as a proportion of the overall Standard Bank value over the past three years, the dilution might not be as straightforward as deducting the proportion of the shares the BEE investor makes available to the ICBC,” said Wu.
“Over time, if this transaction results in significant expansion of Standard Bank’s operations outside of South Africa, it might actually increase the BEE ownership status of the bank, as BEE ownership is measured on South African operations only. In this scenario, once Standard Bank’s non-South African operations represent more than 29% of its total value, Standard Bank’s BEE status is maintained at 10% even after the ICBC transaction.”
Citigroup, with Lehman Brothers and JP Morgan, advised shareholders against the deal. Although shareholders were giving up 20% of the bank, they were only being compensated for 11,1%.
“Given the way the deal is structured, shareholders would need to be paid R161,20 for the 11,1% sold to the ICBC to give them an effective price of R136,” said Citigroup.
Shareholders would forfeit a future control premium as other parties would be deterred from acquiring a control stake because of the ICBC’s presence. Shareholders should also demand that the Chinese bank’s stake is capped at 20,5% indefinitely, as a larger stake would enable it to veto special resolutions.
Standard Bank also offered scarcity value. “The ICBC badly needs infrastructure in South Africa and the rest of Africa. Standard Bank is the only bank that can offer it both. It is one of three banks in the world with an extensive network in the rest of Africa and, as African banks are expensive and hard to come by, the ICBC cannot build its own network. Standard Bank shareholders thus hold the trump card in price negotiations,” said Citigroup.
Although the ICBC transaction was approved by shareholders last week, the deal will be finalised only early next year.