SIPHO Nkosi, the former CEO of Exxaro Resources, has defended the group’s proposed new black economic empowerment (BEE) transaction of which he is a beneficiary through Main Street 333 (MS333).
Nkosi, who is now retired, asked not to be quoted on behalf Exxaro. “I am speaking as a member of MS333 and as a shareholder,” he said in an interview. Nkosi founded Eyesizwe in 2000 which vended coal assets into Kumba Resources. Kumba Resources was then unbundled creating Exxaro Resources. Nkosi was CEO of Exxaro for seven years as well as president of the Chamber of Mines.
“We have no guarantees that our shares will keep their value,” he said in response to criticism that members of MS333, as well as the Industrial Development Corporation (IDC), were receiving a healthy discount in order to re-empower Exxaro. “My intention is to ensure that this company is empowered, but I have no protection as others have got,” he said. The empowerment partners are locked up in the new BEE structure for ten years.
The market has been critical of the deal in which Exxaro intends to replace its previous 50%+ empowerment structure with a new structure in which it will be 30% black empowered. The concern is that after having sold a portion of their shares, the members of MS333 stand to re-acquire a stake in the business at a 40.1% discount.
The exact amount of dilution, however, is a question of interpretation, said bankers at Rand Merchant Bank which has advised on the empowerment for the last three years. Owing to the fact that the empowerment partners, IDC included, are putting in about R4.7bn of their own unencumbered funds, means the dilution falls to about 22%, they said.
The issue of new shares in Exxaro also dilutes existing shareholders to the tune of 7.8%, but Nkosi said this was a cost experienced by all shareholders. “I am also a shareholder in the company so I also have dilution,” he said. “There is no BEE in town where black shareholders are putting in their own money in this kind of quantum,” he said.
Other criticism regarding the proposed transaction is that there’s no provision for broad-based empowerment at the community level. Another concern is related to governance in that Nkosi and Exxaro’s CEO, Mxolisi Mgojo, who is also a member of MS333, own about 3% of Exxaro, but have control over a voting block worth 30% of all shares.
Nkosi said that the original community structures through which Exxaro was first empowered remained in place, but he acknowledged that community empowerment was a debate within the company that had not yet been resolved. “Communities are fluid and it’s not clear their lives are enriched by owning shares,” he said.
“As for my voting shares, I don’t know what that [criticism] means. I vote as a block, not as myself, just as Coronation Asset Management votes as a block of shares,” he said.
Generally speaking, it’s expected Exxaro will garner enough votes to ratify the BEE next week, but the firm’s CFO, Riaan Koppeschaar acknowledged the company had not sought irrevocable support for the proposal. The company requires 75% of all those who vote to approve the deal, excluding the empowerment partners.