Bidvest boss rails against BEE lock-ins

BIDVEST chairman Cyril Ramaphosa on Tuesday launched a fierce assault on black economic empowerment (BEE ) lock-in agreements, saying they inhibited black access to profit.

‘They… hinder black participation in the economy and offend the spirit of empowerment,’ Ramaphosa said.’It could be argued that in the last year lock-ins have depleted black wealth and reversed black advancement because black people were uniquely prevented from realising value when markets indicated that a measure of profit-taking was prudent.’BEE lock-in agreements preclude empowerment shareholders from selling their stake within a certain period, usually 10 years.In an approach known as ‘once empowered, always empowered’, when new companies first started engaging in BEE deals, they assumed that selling a BEE stake would enable them to recognise this contribution regardless of whether the BEE party remained in the investment or not. This approach has been easily abused by selling the empowerment share as well as financing that stake.When dividends dry up, the empowerment partner cannot make the repayments and the BEE shareholding reverts to the financiers.The business holds on to its BEE status and the BEE party is left with nothing.Examples of deals with lock-in clauses include that of TWP Holdings, a mining and minerals services company, which signed a three-year lock-in agreement in 2007 with Vunani, its empowerment partner.The joint venture agreement between Royal Bafokeng Holdings and Impala Platinum (Implats), which was finalised in April 2007, included a lock-in clause stating that Royal Bafokeng Holdings could not dispose of any of its shares unless there was a change of control at Implats.Ramaphosa said the debate around the ‘once empowered, always empowered’ approach was bound to sharpen in the future.He said the definition of ownership would become crucial and the matter needed to be revisited as the reduction in equity values was having unintended consequences.Ramaphosa admitted that weak equity markets had exposed flaws in some approaches to black economic ownership.’So much so that equity stakes dependent on leverage and dividends could revert to financiers. Some businesses that have sincerely transformed might then lose empowerment recognition, though the cause would be flagging markets rather than a flagging commitment to empowerment,’ Ramaphosa said.Ajay Lalu, a BEE expert and partner at Bravura Consulting, said the ‘once empowered, always empowered’ approach was enshrined in the financial sector charter. ‘This goes against the spirit of broad-based BEE,’ Lalu said.Disagreement over ownership of BEE deals scuppered the gazetting of the financial sector charter last year.Lalu said: ‘Absa did a 10 per cent deal with Batho Bonke. But when the deal unwound, Batho Bonke had three per cent unencumbered, meaning only three per cent of value had been created in black hands from the original 10 per cent deal.’Absa should only get three per cent black ownership recognition and not 10 per cent.’- Business Report