Barclays Bank’s potential purchase of a controlling stake in Absa puts into perspective parochial talk of ”big empowerment deals”. The R20-billion bandied about as the price is almost the total spent on black economic empowerment (BEE) deals in 2003. No single deal comes close.
That a foreign bank wants to put such serious money into a South African operation, despite the Financial Services Charter, supports the view that BEE does not necessarily deter foreign direct investment. The value of the asset to be acquired is the deciding factor — if it is mouthwateringly attractive, the buyer will live with the local regulatory environment.
While BEE obligations may not deter foreign investors, they can aid disinvestment by foreign owners. In that sense, they are becoming part of the mainstream investment environment.
This is true of the BEE deals announced by Mondi SA. Mondi is owned by Anglo American, domiciled in London and hence classed as a foreign investor. Anglo’s sale of a big, though not majority, stake in Mondi will mean, on paper, an outflow of foreign money, though the money may be diverted to Anglo operations elsewhere in South Africa.
In any case, BEE transactions are usually structured so that big amounts are not instantly handed over to buy stakes.
BEE transactions can be a handy exit strategy for domestic and foreign investors. Anglo seems simply to be doing empowerment deals as part of its business strategy — no industry charter demands Mondi do a BEE deal.
Mondi has announced two BEE transactions with Cyril Ramaphosa’s Shanduka Resources, one late last year and one more recently.
They have attracted less attention than they should. Shanduka’s two deals with Mondi are worth about R1,5-billion, and encompass packaging and paper. Moreover, the stakes in both cases are higher than the 25,01% norm in BEE deals.
Taking the second deal first, Shanduka Resources will get a 42% stake in Mondi’s R2,45-billion packaging business. In the first transaction, Shanduka Resources — a subsidiary of the Shanduka Group (formerly MCI) — also acquired a 42% interest in Mondi’s newsprint business.
Based in KwaZulu-Natal and valued at R1,1-billion, the newsprint operation dominates the market with a 60% share, and employs more than 300.
Though Ramaphosa is associated with the broad-based National Empowerment Consortium formed to buy Johnnic Holdings, his deals have not been noted for broad-based empowerment. However, in the Mondi newsprint deal, 8%, on top of the 42%, is allocated to broad-based empowerment.
The media need to monitor this, as it is easy to write ”broad-based” on a document. For now, we know broad-based empowerment is meant to be achieved through a new investment vehicle created for the two deals. Mondi will inject 3% of its equity and Shanduka 2% into this vehicle, for Mondi’s 6 400 employees, most of whom are black. Mondi will also put into the same vehicle 4% of its 58% equity stake in Mondi Shanduka Newsprint.
Clearly, empowerment tycoons are becoming sensitive about the ”elite enrichment” charge. Shanduka has reportedly launched the Shanduka Foundation as a channel for social and community investment initiatives of at least R100-million over 10 years.
Again, who will monitor this? One hopes Shanduka at least enters the Mail & Guardian’s Investing in the Future Awards next year. BEE companies are not known for their corporate social responsibility commitments.
Few details have been released about the financing of the packaging transaction, and none about the newsprint deal. In the former, Standard Bank will provide ”non-recourse senior debt”, and Mondi will grant ”subordinated” or junior debt — so the deal is a mixture of vendor financing and third-party debt. Mondi says it and Shanduka will make ”meaningful equity contributions” to the company.
Finally, the deal lifts the veil on the people behind Shanduka, which has interests in resources, property and financial services. Largest shareholders, according to Mondi, are the group’s predominantly black management (25%), Ramaphosa’s family trust (30%) and former mineworkers’ leader James Motlatsi (6%). The Mabindu Development Trust and the Fundani Education Trust collectively hold another 5%.
Reg Rumney is the director of BusinessMap