The broad-based black equity ownership programme announced by the country’s biggest microlender, African Bank Investments Limited (Abil) on Monday, could potentially reach more than 30Â 000 people, according to Abil.
The deal, valued at about R600-million, will see a group comprising black employees, shareholders, clients, the public and a development trust yet to be formed gain an initial 7% stake in Abil.
But it has been designed to enable the black shareholding to grow to more than 15% in 10 years, of which at least 10% will be unencumbered.
Abil chairperson Ashley Mabogoane said on Monday that the group has been working for two years to develop a structure that is informed by the national imperative to broaden participation of black people in the mainstream economy in general, and Abil in particular.
The proposed structure will provide a broad base of individuals with the opportunity to participate in a wealth-creation programme. Given that Abil is a retail business that engages with a large cross-section of the economy, it is ideally placed to facilitate such an initiative.
Leon Kirkinis, MD of Abil, said a key requirement is that the contribution by Abil shareholders should be a one-off cost and the structure should optimally use this contribution as a material equity underpin for the build-up of a significant stake in the group by black individuals.
Abil estimates the economic cost to shareholders of the black equity programme to be 4,3%, based on the dilutionary effect of the issue of 21,2-million shares worth R350-million.
Abil believes that the structure should not focus on the nominal size of the transaction at the outset, but rather achieve a sustained significant unencumbered direct black shareholding within a period of 10 years.
“There is no limitation to the size of the eventual shareholding, which will primarily be a function of dividend flows on the Abil shares and continued favourable third-party funding over the period,” says Kirkinis.
The structure makes available 60% of the programme to existing and future black directors and employees, 15% to Abil’s existing black shareholders, 20% to Abil’s black clients and historically disadvantaged individuals from the general public, and 5% to a development trust, aimed at providing public benefits to the broader community.
Allocations and price will be made on the proximity principle, which means that the closer the participant is to the business, the greater the discount at which they will be able to participate. Any shares not taken up by the intended beneficiaries will cascade down to the next category of beneficiaries (the waterfall principle).
One of the prerequisites of the programme is that the shareholder contribution should also be enhanced by meaningful capital contributions by the participants. Participants will subscribe for shares at prices ranging from 15% to 40% of the intrinsic value.
The structure should also have conservative gearing, in order not to be subject to the risks associated with highly geared structures.
The group therefore proposes that the initial shareholding be financed by Abil issuing R350-million-worth of shares, a contribution from participants of R100-million, and third-party funding of R150-million.
The third-party funding has been underwritten by RMB and Barclays.
The R250-million raised from the participants and third-party funding will be used to buy more Abil shares in the open market, over a reasonable period.
There will be no further costs to shareholders during the 10-year duration of the black economic empowerment (BEE) initiative. Given that Abil has surplus capital, the group will mitigate the dilutionary cost through the declaration of a special dividend of 70 cents per share to existing shareholders, subject to the programme being approved at a general meeting.
The group said that the programme is considered an enabling framework for the fulfilment of Abil’s broad-based BEE aspirations. Abil will soon after the announcement embark on a process to engage with all stakeholder groups to ensure that the implementation of this framework is optimised and ultimately achieves the necessary support and buy-in. — I-Net Bridge