Sasol’s R18-billion BEE transaction, announced this week, is another step in the toenadering between the synthetic fuel and chemicals producer and government.
This is the biggest BEE transaction (until the next one comes along). It marks a new stage of atonement for Sasol’s remark in its statutory filings for the New York Stock Exchange that BEE was a “risk”.
The sale of 10% of the holding company comes on top of deals at the operational level in mining and liquid fuels, the appointment of several black executive directors to the board of the South African-based multinational and increases in the number of black managers and of affirmative procurement.
What this deal underlines is how the pressure to be broad-based is shaping the nature of BEE transactions. The deal has been designed to reach as many black people as possible, rather than to spur the development of black business, which is what narrow-based empowerment deals are arguably designed to do.
Many BEE deals have had a lead partner being “one of the usual suspects” or a BEE company, with the remaining shareholding being groupings of black women, disabled people, Umkhonto weSizwe veterans and so on.
Narrow-based BEE deals would have only one partner, usually a BEE company such as Mvelaphanda, headed by a high-profile individual such as Tokyo Sexwale.
Not all of Sasol’s transaction fit into one’s idea of BEE deals.
This deal splits up shares for staff, the black public, a foundation dedicated to skills development and only then to what might be the classic BEE structure.
Beneficiaries Percentage
Employees 4%
Black public 3%
Selected partners 1,5%
Sasol Foundation 1,5%
Total 10%
A sizeable chunk is an employee share ownership plan (Esop), covering both white and black employees. In the retail sector, 4% for an Esop is not unusual — though such plans in this sector have set aside as much as 10% for employees.
The Sasol Foundation will receive a donation of 1,5%. This is what is normally considered corporate social investment (CSI). The FirstRand BEE deal, which also involved foundations, was criticised for being more CSI than BEE.
Of Sasol, 3% will be sold to black South Africans along the lines of the recent Asonge share scheme run by the National Empowerment Fund, which offered discounted shares in MTN. And 1,5% will go to selected partners, with the details still to be worked out.
Because it is at the holding company level, the R18-billion deal is not counted under any of the charters but under the codes of good practice, which act as government’s super-charter. The earlier deals done by Sasol comply with the Mining Charter and Liquid Fuels Charter.
Were the deal done to comply with either charter it would have to be a step on the way to transferring 25% or more of the company, rather than the 10%.
I understand that this deal qualifies Sasol as a Level 4 contributor in terms of the codes, which means it scores between 65 and 75 out of 100 on the balanced empowerment scorecard.
The deal has been seen as the cost of a licence to operate in South Africa. Let us hope this is not misunderstood; R18-billion would be a high price for a licence, but some of this R18-billion is the sale of shares rather than a donation.
The financing details still need to be worked out and so are sketchy, but surely some of the R18-billion will return to Sasol’s coffers. At present Sasol is buying back shares for the deal, so as to avoid dilution of present shareholders’ interests. Sasol is confident it can arrange funding for that part of the R18billion that needs to be bought.
The employee share scheme can be seen as an investment in staff and the foundation’s focus on skills is the kind of “investing in the future” — the title of the Mail & Guardian‘s annual awards — the country needs to prosper. The foundation will have independent directors, I understand, though its brief will be to focus especially on scientific and technological skills.
Selling shares to the public is politically a shrewd move. You have so many more people on your side in any dispute with government. This is especially so if you are perceived to be a product of the old order, too white and too Afrikaans-speaking, and used by apartheid to fend off the oil boycott of South Africa.
Selling at least some shares to black suppliers and customers does cement relationships. So there are good reasons for companies to favour broad-based empowerment.
Imagine the furore if Sasol helped Cyril Ramaphosa’s Shanduka or Vusi Khanyile’s Thebe Investments buy R18-billion worth of Sasol shares.
On the other hand, broad-based deals are a rather inefficient form of wealth redistribution. Narrow-based empowerment at least holds out the hope of creating fresh competition in the form of young, hungry and, most importantly, well-capitalised black companies — if not now then soon.
To give Sasol and the codes credit, it has changed notably in the past few years to get that Level 4 rating. What has not changed — and why should it? — is the concentration of economic power in the fuel industry and the continued regulation of fuel prices.
BEE has done nothing to speed up deregulation. If anything, the focus on BEE has distracted us from getting rid of one of the last regulated prices, one that might be making fuel more expensive than it should be.
And now that Sasol is about to make many ordinary people have a direct interest in Sasol’s profitability, will BEE trump competition in any future decision about Sasol’s place in the economy?