The government is set to climb down on black economic empowerment (BEE) funding requirements when it unveils the final draft of the BEE Codes of Good Practice this week.
A source privy to the drafting process said that the contentious requirements will be loosened.
The requirements seek to award points according to the empowerment scorecard only once full economic benefit has been transferred to the empowerment party and the stake has been fully paid for.
The Codes of Good Practice were unveiled in December, and have since been through an intensive consultation process. They are meant to standardise the BEE monitoring process by clearly defining all aspects of empowerment. The current set deals with ownership and control.
The codes are also meant to help companies that operate in more than one sector and subscribe to more than one charter.
But a sticking point has been statement 100, which restricts a range of popular funding methods for BEE deals, such as preference shares. More importantly, it forbids practices such as lock-in periods for the empowerment shareholder.
It also does not allow for the awarding of points for ownership until the empowerment stake has been fully vested and paid for by the empowerment partner, a process that can unfold over a decade.
The code was widely criticised as restricting BEE financing options and possibly rendering many concluded deals unviable.
In its defence, the Department of Trade and Industry has argued that the restricted portion is only eight points out of a possible 100, implying that companies can earn the 92 points from areas such as employment equity and procurement, while gradually earning ownership points as the purchased stake is paid off.
Department official Lionel October refused to be drawn on what next week’s draft contains. “All I can say is that the policy objective of avoiding unsustainable, debt-laden deals has been maintained,” he said.
The next set of codes, which cover areas such as management, employment equity and enterprise development, will be released next month.