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Business & Technology
Sep 18 2012 7:36AM
Absa’s BEE credentials shaky
AT THE HELM: Absa CEO Maria Ramos. Picture: TNA
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Sibonelo Radebe

Banking group Absa does not seem to be bothered by the prospects of losing its strategic black economic empowerment (BEE) partnership which might suggest that it is holding onto the controversial “once empowered always empowered” principle.

Responding to The New Age question about how it plans to meet the challenge that comes with the maturity of its Batho Bonke BEE formation, Absa said “ownership is not the only element that BBBEE is measured on”.

Absa clinched a deal with Batho Bonke in 2005 in a transaction which promised to transfer about 10% of the bank’s equity to the Mvelaphanda Group led consortium.

The deal has matured, giving Batho Bonke the right to exit. The net value of the transaction has also been whittled down to about 3.9% due to the leakage associated with inefficient BEE deal funding. In a statement issued last week, Mvelaphanda’s largest shareholder the Blackstar Group suggested that the Batho Bonke consortium has moved closer to disposing its Absa stake. It said: “The remaining focus in MVG (Mvelaphanda) is the disposal of its investment in Absa Group, as well as its stake in Group Five. The realisation of these investments is currently in advanced stages.”

The largest banking group in the country suggested that its BEE credentials will be sustained by other elements of the BBBEE scorecard including management and control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development.

In a statement, Absa said: “Absa is independently verified once a year on December 31 and it is therefore too early to project the full outcome as the other six elements will also influence the end result.

“That said, if Batho Bonke were to sell, this will impact the ownership score. It is important to remember that Absa was the first of the four major banks to implement its 10% BEE transaction in July 2004 and it follows that Absa’s BEE deal will be the first to unwind”.

The bank added that the market was expecting a gazetting of the Financial Sector Code in due course after receiving comments from the public.

The latter comment may suggest that Absa, like other banks, is still hoping for the survival of the once empowered always empowered principle being pursued by the sector through the Financial Sector Charter (FSC). Sources close to the FSC drafting process have told The New Age that the principle has been rejected by government and other stakeholders.

“You can see from their response that they are waiting with bated breath for the FSC which has been delayed for about four years over the issue of “once empowered always empowered”, said Ajay Lalu founding executive of BEE consulting firm Black Lite Consulting.

“The reliance on the FSC is problematic for financial sector companies. The FSC is not a gazetted sector code and the “once empowered always empowered” principle is unlikely to manifest in such a code as this principle does not exist in the codes and nor should it exist in the new codes,” said Lalu.

He said Absa would struggle when the amendments of the new BBBEE codes are done as ownership was a priority element.

“The fact of the matter is their ownership level will go down. I don’t understand why financial services companies should be treated differently to any other sectors of the economy.”

The claim that Absa’s BEE credentials will be sustained by other elements of the scorecard may also be blown out of the water if the proposed changes to the BBBEE codes of good practice go through. The Department of Trade and Industry is preparing to release the proposed amendments for comment.

The amendments propose to turn the ownership element into one of three priority elements. Such might require companies to score at least 40% in the priority elements before claiming points on other elements. This might mean that failure to achieve a sub-minimum of 40% in ownership will lead to penalties. Absa may not necessarily find itself in a disadvantageous position against its competitors when bidding for public works. This is because all the big banks are in the same boat when it comes to ownership.

The major players are through the Banking Association of South Africa resisting pressure for them to embark on a second wave of BEE deals.

While this may not affect business, it is the kind of thing with potential to draw attack from populist quarters.

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