Group Five, one of the largest construction firms in the country, has now concluded its second black economic empowerment (BEE) transaction after its first attempt which claimed millions of rands disappeared into thin air.
Group Five’s first BEE attempt expired when Mvelaphanda Group, the Tokyo Sexwale’s BEE investment outfit, cashed out last year. This was after another Group Five’s BEE formation, Ilima , went sour in 2010. Both BEE partnerships with Mvelaphanda and Illima were established in 2005 and promised to deliver more than 20% black ownership. The expiry of these two initiatives left the group naked in BEE terms, which is not a good thing when you operate in the mainstream construction market, where BEE credentials can determine your ability to win contracts.
Announcing its latest interim financial results yesterday Group Five said its BEE initiative, designed to deliver shares to the Black Professionals Staff Trust and Izakhiwo Imfundo Bursary Trust was concluded on the 16th of January 2013.
As such “the full estimated charge of R16,8 million (R12,7 million originally estimated as per the circular to shareholders) is recognised fully on grant date charged against. The financial effects of the revised transaction will therefore be charged against income from the second half of 2013.
This time around the group seems to have ensured that it has a measure of control over the future of its BEE initiative. It will certainly have a measure of control over the two trusts as compared to the 2005 formation. This does suggest that Group Five no longer has confidence over BEE partnerships with the so-called independent strategic BEE partners. Many other corporations have landed in the same mode over the years after investing millions into BEE transactions only for such initiative to disappear. The question to ask is: Could this be part of a wave that represents the beginning of an end for the so-called strategic BEE partnerships.