Black South Africans are set to get a piece of high global oil prices with the announcement of petrochemical giant Sasol’s long-anticipated black economic empowerment (BEE) deal – the biggest in the country’s history. With 63.1-million shares worth R25.9-billion (US$3.2-billion) to be sold to investors and the company’s black staff, the deal will make up 10% of Sasol’s issued share capital, or 19.7% of its South African operation.
First mooted in 2007 and announced on 25 March this year, the discounted BEE share offer is expected to be formally adopted at a shareholders meeting on 16 May.
“Sasol is truly committed to South Africa’s transformation and wants to make broad-based economic empowerment a reality,” said Sasol chief executive Pat Davies. “We will make a difference by creating significant economic opportunity for more than 1-million potential beneficiaries ranging from individuals to rural women’s groups who can invest in Sasol.”
Established in the 1950s, Sasol is one of South Africa’s technology success stories, the first in the world to produce diesel and petrol from coal, an abundant resource in South Africa. Now a multinational group of companies, it has since gone on to develop gas-to-liquid technology, and expanded its end products to include plastics, fertilisers and explosives. Its chemical portfolios include polymers and solvents, and their intermediates, waxes, phenolics and nitrogenous products.
Sasol’s BEE deal – named Inzalo, a Zulu word signifying new life and new beginning – will give black South Africans either indirect or direct ownership, or both, of the company’s issued share capital, with full economic and voting rights. The breakdown of the 10% share is 4% to black Sasol employees, 3% to black South African investors, 1.5% to a Sasol Foundation initiative, and 1.5% to selected empowerment participants.
The Broad-Based Black Economic Empowerment Act of 2004 rates companies’ BEE level in four areas: black ownership and control; black management; human resource development and employment equity; and indirect empowerment – preferential procurement from empowered suppliers, enterprise development, and corporate social investment.
Black empowerment is widely accepted in South Africa as a pragmatic policy to fix the economic damage of apartheid, by bringing the black majority into the mainstream economy. From 1948 the apartheid government, by force and law, purposefully excluded African, Indian and coloured people – collectively known as “black people” – from any meaningful participation in the economy. The resulting economic distortions sent gross domestic product (GDP) growth falling to around zero in the 1970s, rising to an average and sluggish 3.4% in the 1980s.
Since the end of apartheid in 1994, macroeconomic reform and other policies, including BEE, have seen South Africa’s GDP growth rate – with some hiccups – steadily increase. GDP rose by 2.7% in 2001, 3.7% in 2002, 3.1% in 2003, 4.9% in 2004, 5% in 2005, 5.4% in 2006 and 5.1% in 2007.
Funding the deal
The flurry of initial BEE deals in the late 1990s exposed two gaps in the existing policy: it tended to only benefit the already wealthy black elite, and financing the ownership component tended to be tricky.
Sasol’s Inzalo is part of a new breed of broad-based BEE deal that closes both gaps: the company is to issue shares worth R350 000 ($43 320) to each of its 14 500 black staff, funding the issue in its entirety. Black managers will get shares worth R1-million ($132 700) to R2-million ($247 700), depending on their seniority. Significantly, the deal doesn’t include any of South Africa’s big black business personalities.
The staff offering is also geared to retaining skilled black managers and technicians.
“We want to encourage investors to stay in for the full 10 years,” said Christine Ramon, Sasol’s chief financial officer. “Sasol is a long-term investment, with great growth opportunities.”
Sasol’s public share offer aims to attract between 100 000 and 200 000 new black investors. Making up 3% of the deal, it has been designed to meet the needs of a range of South African shareholders, from individuals, companies, partnerships and trusts, to informal groups such as stokvels – widespread community-based money-saving schemes – as well as church groups and families.
The investor shares will be offered at an 11% discount, down to R366 from the R410 closing price of 18 March.
The Sasol Inzalo Foundation will focus on developing critical skills in maths, science and technology.
“This Foundation is an extension of Sasol’s long-standing tradition of giving back to the community through, among others, artisan training programmes, bursaries, cooperation agreements with tertiary institutions and other sponsorships,” said Sasol executive director Nolitha Fakude.