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By Agnieszka Flak
CAPE TOWN, Feb 11 (Reuters) - South Africa’s push to sell equity stakes in mining firms to black investors to redress their exclusion under apartheid has been hit by the financial crisis and needs help, a top banking official said on Wednesday.
Corporate deals under the programme, known as Black Economic Empowerment (BEE), have been adversely affected by the credit crunch, falling metal and stock prices and some of the assets could be lost unless the government, the mining industry and the financial institutions step in to save the day.
“Everyone should get around the table and it needs to be done quickly,” Cliff Zephyrine, head of empowerment department at Absa Capital ASAJ.J, said at a mining conference.
Many deals under BEE are complex and are funded by companies selling shares. Black investors usually repay the loans with dividends, and the shares act as collateral.
But with markets collapsing, such deals are under threat.
“The BEE party is at risk of losing all the wealth that has been created. The banks (will) end up owning assets that may or may not be sold and the government is in an election year with empowerment being a political priority,” Zephyrine said.
Under BEE, South African mining firms are required to sell 15 percent of their assets to black investors by 2009 and 26 percent by 2014 to bring black people into mainstream economy.
Zephyrine said some well-capitalised BEE companies could move in to replace some weaker entities or private investors who could assist the BEE parties with flexible capital.
South Africa’s Finance Minister Trevor Manuel told a pre-budget briefing that bringing black people into ownership was a constitutional imperative, but a funding model based on equity participation held huge risks.
“There are a number of these transactions that will be exceedingly hard to see profitability in our lifetime, because they were premised on the notion that the share price would climb very quickly... Even deals offered at a pretty deep discount, they are finding themselves under water.”
“Is it rational at a time like this that we go to the market, and capital markets are tight, and borrow loads of money that we can dole ou? How do you deal with it? I don’t know how you deal with it,” said Manuel.
Zephyrine suggested corporate groups could move in to rescue their BEE partners and even absorb their loans.
Minerals and Energy Minister Buyelwa Sonjica said at the conference a task team will discuss possible solutions.
Zephyrine said such a task team would need to also involve BEE investors, financial institutions and the industry.
The government could give a financial incentive through rebates on royalties to companies or tax credits to banks.
A bailout would need to be done with prudence, he said.
Sonjica said that while nothing had been decided yet, a bailout was one of the options contemplated.
She also said the BEE initiative would be reviewed as it had not met some of the targets it was initially designed for.
“It has not performed as much as I had wanted. I still want to see a transfer of experience and skills from bigger companies that has not happened,” she said.
“The model and the mandate of the BEE should be reviewed ... it is a vehicle to bring blacks into the ownership of mines and we need to make sure that it delivers that mandate.” (Additional reporting by Wendell Roeld; Editing by James Jukwey and Keiron Henderson)