Original publish date – Mon, 16 Aug 2010 11:57:41 +0000, Keith

The ArcelorMittal deal was done in order to comply with the B-BBEE codes. If that is their intention they have done a very bad job.

Based on their published SENS announcement we have calculated the points they could earn this year, and made various estimates where we felt it appropriate.

Ownership is made up of 23 points.

Voting rights of black people in the organization: Target 25% plus 1 vote: 3 points
The participants hold 26% of the shares, though some of the participants are not black as defined (the Gupta family). If the Gupta family owns 10% of the BEE SPV consortium that is a 21% shareholder then effective ownership would be 23.9% and not 26%. However the modified flow through principle applies, ensuring that targets are reached and 3 points earned.
Points earned: 3

Voting rights of black women the organization: Target 10% plus 1 vote: 2 points
The BEE SPV has stated that 25% of its shareholding will be black women, and using the flow through principle black women will own 5.25% of the business.
The ESOP is reserved for employees and holds 5% of the business. If black women account for half, there would be 2.5% black women ownership, though based no the ArcelorMittal business it is reasonable to estimate that 80% of its black employees are male.

Therefore we estimate that there is 6.5% black women ownership, and 1.3 points will be earned
Points earned: 1.3

Economic interest of black people in the enterprise: Target 25%: 4 points
The participants will only earn 5% of ordinary dividends and 0% of extraordinary dividends for at least 5 years. Economic interest, using the modified flow through principle will be less than 5% of 26%=1.3 % out of a target of 25%. We would estimate 0.21 points will be earned for economic interest, though the key principle of substance over form suggests that zero economic interest will be earned.
Points earned: 0.21

Economic interest of black women in the enterprise: Target 10%: 2 points
Based on 6.5% black women ownership who receive less than 5% of dividends, economic interest will be less than 0.325% and 0.06 points earned.
Points earned: 0.06

Economic interest of black natural people in the organization: Target 2.5%: 1 point
This would include employee share ownership schemes, and it is likely that some of the participants in the BEE SPV fall within this category. We estimate that 6% of the shareholders fall into this category but they only earn 5% of the economic interest and 0.1 point earned.
Points earned: 0.01

Ownership Fulfillment: 1 point
Ownership fulfillment has not taken place so zero points are earned.
Points earned: 0

Net Value: 7 points
Net value is based on economic interest and the repayment schedule. Payment would have been made in full, but economic interest is only 1.3% out of a target of 25%.
Points earned: 0.36

Bonus points:
Involvement in the ownership of the enterprise of black new entrants: Target 10%: Points 2
The ESOP is likely to be black new entrants, and part of the consortium is likely to be new entrants. Out of the 26% ownership we could expect 8% to be black new entrants. However points are earned only based on economic interest. Economic interest of the entire consortium is only 1.3%, so the share of black new entrants is about 0.04% out of 10%
Points earned: 0.01

Involvement in the ownership of the enterprise of ESOPs: Target 10%: Points 1
This is also based on economic interest, and less than 0.01 points will be earned.
Points earned: 0

Grand Total: 4.95 points out of 23

Not many points….