Warehousing,+government+buys+BEE+stakes,+B+Day

Business Day, Johannesburg, 21 December 2005
=**‘Warehousing’ mooted for selling BEE stakes**=


 * Rob Rose, Chief Reporter**

GOVERNMENT released the final piece of its empowerment puzzle yesterday, including plans for a new “warehousing fund” that will buy shares from black investors eager to exit empowerment deals, while allowing such companies to keep their black ownership status.

Trade and industry deputy director-general Lionel October said the warehousing function would hopefully lead to less stringent lock-in clauses in empowerment deals, which typically prevented black partners from selling their shares before a certain time, even if there were legitimate reasons.

“It won’t be compulsory, but it’s a facility to assist transactions to take place, allowing white partners to seek new black investors,” said October.

Industry has three months to comment on the draft legislation, and the final version may be ready for implementation only next November — leaving business in a state of limbo for another 11 months.

Facing criticism from businessmen over this timeframe, Trade and Industry Minister Mandisi Mpahlwa conceded he too was “worried” about another year of uncertainty.

“I hope we can do it much faster than that,” he said.

Yesterday’s second set of codes of good practice laid out new rules, including exempting foreign multinationals from selling equity in their businesses to black investors, and detailing how small companies must implement empowerment.

But the key innovation was the “warehousing fund”, which Mpahlwa said would accommodate companies whose black investors pulled out.

“This gives the option of warehousing that interest with a view to finding an alternative black partner,” he said.

The department’s acting chief director of empowerment, Polo Radebe, said the fund created an “exit mechanism for black investors”, which allowed firms to keep their empowerment status.

The innovation comes after much controversy in recent years during which certain companies were badly burnt when their “empowerment deals” fell apart.

In one notable instance, Harmony Gold signed an empowerment deal in 2001 with a black consortium known as Simane.

However, mining boss Mzi Khumalo bought Simane’s shares quietly, and made millions by selling his stock in the open market, leaving Harmony with minimal black ownership.

While the codes do not specify that black investors must sell their shares through this warehouse, it does provide an easy escape route for them.

Importantly, the company would “be entitled to claim points on its ownership scorecard” while a new deal was nailed down, if the shares were warehoused, said Radebe. To use the fund, a company must have already found new black shareholders to whom it wanted to sell, and the fund could only warehouse shares for a maximum of three years.

“If the (new black investors) can’t come up with funding during that time, the fund will try to find replacements.”

The codes also relaxed the rules on multinational companies, which were reluctant to sell shares to black investors.

The codes say foreign multinationals such as Microsoft do not have to sell shares to black investors, but can rather plough money into “equity equivalents”, such as greater investments, to score points on the scorecard.

However, some of those who attended a media briefing yesterday felt government had “bent over backwards” to appease multinationals.

The codes also say that companies that use black people as “fronts” will be docked points — a penalty which prominent businesswoman Danisa Baloyi said was too lenient.

“People are getting more slick on fronting … you are either a sinner, or you are not,” she said.

The codes confirmed that small businesses would have to comply only partially with the “empowerment” scorecard

The codes say “qualified small enterprises” with turnover of less than a certain amount can choose to meet only five of the seven scorecard elements. The codes also clarify finally that state-owned entities will have to comply with the scorecards in all respects except ownership.

From: http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A130037