Petrochemical giant Sasol has essentially conceded that its R30 billion broad based black economic empowerment (BBBEE) deal is set to flop when it matures next year.
A statement released by Sasol this morning shows the company expects the scheme to unwind with no value flowing to investors. As things stand the scheme runs with a R2.1 billion shortfall. The company is setting out to reconstruct the Sasol Inzalo BBBEE transaction. It will be reborn with a new name; Sasol Khanyisa.
This is devastating news to the multitudes of poor people who invested in the Sasol Inzalo BBBEE scheme nine years ago. More than 200 000 black people were sold a false ‘reparation dream’, BBBEE being a political program designed to right the wrongs of the past.
The news will be even more painful in light of the fact that banks have made a killing out of the failed Sasol Inzalo scheme. Banks may have raked in more than R5bn in interest income. Both banks and Sasol have derived considerable business boosting BBBEE points from the scheme while the rightful beneficiaries have lost value. This amounts into fronting of sort.
Sasol Inzalo was established on the 7th of September 2008 as a 10 years long BBBEE deal. The R30 billion transaction sort to acquire for empowerment purposes 10% of Sasol shares. The deal was shared as follows: broad-based groups (15%); members of the black public (30%); Sasol Employees (40%) and the Sasol Inzalo Foundation (15%).
The scheme has failed to create value due to a combination of factors. It suffocated under a pile of expensive debt. A sinking oil price made it impossible for the scheme to neutralise its debt. And Sasol’s share price has also under-performed over the past nine years.
Most of the money generated under the scheme was gobbled up by interest payments.
There will be no value in the scheme when it matures in September next year.
Sasol’s statement said based on the share price of R389.00 on 4 September 2017 and funding balances, there is a shortfall in the scheme R1,2 billion. “As a result, assuming the Sasol share price remains at current levels, there will be no distribution of Sasol ordinary shares to Sasol Inzalo Public shareholders when the Inzalo Transaction ends in 2018.”
And so Sasol has devised a plan to save and resuscitate the scheme under a new name Sasol Khanyisa.
In a move that indirectly condemns the negative role of banks in empowerment transactions Sasol has resolved to fund the new scheme itself using a principle called vendor financing.
You might be interested in this piece: