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Black bankers score big from empowerment deals   Stuart Theobald Business Times Sunday, January 24, 2010   Black South African bankers are making a fortune out of the empowerment deals concluded by banks in terms of the financial sector charter. Banknotes calculates that the big four banks’ empowerment deals have netted participants a combined profit of R17-billion. And that’s real wealth, unencumbered by debt. The performance is thanks largely to luck in timing — most deals were done in 2004 and 2005 just as bank shares were getting into a bullish stride. Standard Bank Best off are those who invested in the Standard Bank empowerment deal. Thanks to the performance of Standard Bank’s share price and the generous financing terms for the deal, the beneficiaries are currently sitting in a profit position of more than R6-billion. That was helped by Standard Bank’s tie-up with the Industrial and Commercial Bank of China, which bought shares at a generous R136 in 2007, a price they have never reached on the JSE. That brought a R1.5-billion windfall to the empowerment investors, who had picked up the shares at R40.50, financed at a fixed 8.5%. Half of the Chinese cash was used to pay off debt and half went to the beneficiaries as a cash bonanza. Dividends are now more than covering the finance costs (the extra dividends are being paid to the beneficiaries), so the difference between the current value of the shares (R107) and the amount paid is pure profit. Of the R6-billion, Saki Macozoma is the biggest single beneficiary. Macozoma owns 23% of Safika Holdings, whose Standard Bank stake is in a profit position of R1.4-billion. Cyril Ramaphosa’s Shanduka (of which Ramaphosa owns about 32%) is worth just under R1-billion. The biggest beneficiary group, however, is Standard Bank’s own staff, particularly its 6400 black managers. Collectively, their interest is worth about R2.4-billion. The managers’ stake averages out to over R375000 each, but the distribution of that is weighted according to seniority, so Standard Bank’s top black managers, like South African CEO Sim Tshabalala and corporate & investment banking head Kennedy Bungane, will be far better off than the average. The final investor group is Standard Bank’s Tutuwa community trust scheme, which, according to the original deal documents, will be sitting with a profit of R1.2-billion. Half of that goes to a foundation that supports schemes to benefit black people, but the rest goes to 250 black-owned companies selected by Standard Bank. Their stake works out to about R2.4-million each. The companies are all small businesses (with turnovers between R500000 and R20-million), so their Standard Bank stake could make a big difference to their fortunes. There are also stakes in Liberty that the investors hold, but they have not performed as well. The scheme was structured to last for 20 years, but participants are able to leave earlier if the debt is fully paid off. Absa Absa’s partners are also sitting pretty, buy not as pretty as Standard’s. Last year Absa’s empowerment deal reached the conclusion of its five-year lifespan. The mechanism of the deal meant that the empowerment investors had to sell half of the options they held over Absa stock, and exercise the rest. The bottom line is that they have ended up with a 5.1% direct stake in Absa, valued at R4.8-billion, against which they are carrying R1.7-billion in debt. That is a net asset value of R3.1-billion. That profit is divvied up between a wide range of interests — human settlements minister Tokyo Sexwale’s Mvelaphanda Holdings gets 20% of it (R620-million). Nthobi Angel, who was with Mvelaphanda at the time of the deal but has since worked at Eskom and various empowerment investment initiatives, has 3.5% (R109-million). Leslie Maasdorp, deputy chairman of Absa Capital, also holds 3.5%. Absa staff hold 15.7% (R487-million), while various community trusts, small businesses and individuals own the balance (R1.77-billion). FirstRand Done later than Standard Bank’s and Absa’s, FirstRand’s deal has also made a mint. The beneficiaries are very widely distributed, with a range of trusts and a third of the shares apportioned to black staff. They are all looking rather well-off. The pricing of the deal was complex: the empowerment partners bought shares for R12.28 each, but were also issued shares at par value. That meant the effective price paid per share was R9.68 to buy R5.4-billion-worth of shares. That purchase was funded from a consortium of banks and other funders at rates between 8.5% and 13.5%. With the shares now trading at R19, the investors have doubled their money — a potential profit of more than R5-billion — although some of that will be used to cover the cost of debt. The biggest trust groups are those of Kagiso (currently due R1-billion of the profit), companies and trusts linked to the National Union of Mineworkers (R605-million) and Women’s Development Businesses (R605-million). FirstRand’s black employees get R1.77-billion and a foundation to support black people gets just over R1-billion. That foundation was the funder of a scheme at First National Bank to grant bursaries to poor black staff for their children’s education. FNB has, however, changed terms of the scheme following protests from trade union Solidarity. The FirstRand investors are locked into the scheme until 2014, after which they will receive the profits as of that stage. Nedbank Nedbank’s empowerment shareholders are the least well-off. Their deal was the most complex, with different entities in the consortium paying different prices and getting different financing costs. Nedbank deployed a “notional finance” model to the deal, which in effect meant most participants got their shares at 75% of the market price, equivalent to R56/share (except the main black business partners, Brimstone and Wiphold, who paid market value). The cost of finance is fixed at 11.83% and to date the dividends paid out have almost covered the interest paid. The share is now trading at R121, so their value has more than doubled (the black business partners’ is up 62%). The participants, which include a large number of black Nedbank retail and corporate clients, are sitting with a collective profit pile of R1.8-billion, and black employees are sitting on a further R1-billion profit. Different elements of the deal have different terms, ranging from three to 10 years from when the deal was done in 2005. It is clear that all the bank empowerment deals have made their shareholders good money. But, with the current state of confusion over the Financial Sector Charter, the banks are not sure if terms of the deals will still count, particularly the “once-empowered, always empowered” principle, which allows the empowerment shareholders to sell their shares without affecting the banks’ ownership points. The possibility of another phase of deals may arise, but it will not be at the attractive prices the current phase benefitted from.   Print this article |  Send to a friend