BEE Partner, South Africa Economy Watch

BEE Party’s Net value calculation

The net value calculation is broken down into two formulae and draws from the deemed net value result above. The first, Formula A, calculates the debt-free ownership as calculated above, as a percentage of the targeted debt-free ownership for the year, measured as a pro-rata score against the allocated points.

Formula A

Note: This formula is a simplified version of what appears in the Codes. However, the result is the same.

A ^=9B/25%C

Step 1 Extract B, the deemed net value, from the result of the formula above.

Step 2 Calculate C. The graduation factor is the time-based target as set out below:

• 10% at the end of the first year after the net value date. The net value date is the later of the date of 9 February 2007 and the date on which the first unconditional BEE ownership deal that is still operational became effective. If a deal was done before 9 February 2007 then the net value date is 9 Feb 2007. If the deal was done after 9 February 2007, then the net value date is the date that the BEE deal became effective.
• 20% at the end of the second year
• 40% from the first day of the third year to the last day of the fourth year
• 60% from the first day of the fifth year to the last day of the sixth year
• 80% from the first day of the seventh year to the last day of the eighth year
• 100% from the first day of the ninth year to the last day of the tenth year.

Step 3 Multiply the result of Step 2 by the economic interest target of 25%. This provides the targeted debt-free ownership for the year.

Step 4 Divide Step 1, the deemed net value or actual debt-free ownership, by the result of Step 3, the targeted debt-free ownership. Step 5 Multiply the result of Step 4 by the allocated nine points.

The result is A, the pro-rata portion of the allocated points. This result must be compared to the result of Formula B and the lower of the two scores adopted.

The problem with Formula A is that it does not measure the BEE party’s overall shareholding. Therefore, full points could be scored if the BEE party only owned 5% of the business, which undermines the objective. Formula B is introduced to limit the net value points where the ownership target is not reached. Formula B limits measurement according to the strict flow-through principle, which has important consequences. Where the BEE party has financed the acquisition through the sale of equity to white parties in a BEE vehicle, the portion of the BEE vehicle owned by white parties is not recognised as Black owned. The modified flow-through principle is not applicable here – the strict flow-through principle must be used. It is important that Formula B is calculated using actual Black shareholding only.

Formula B is as follows: A = B/C * 9

A = the score to be compared against the result of Formula A

B = the percentage of economic interest Black participants hold in the entity. The Codes state “Black participants”, which means natural Black people. This restricts measurement to the flow- through principle and the modified flow-through principle is not allowed.

C = the target in respect of the ownership criteria (that is, 25%).

Step 6 Calculate B, the percentage shareholding in the hands of natural Black persons using the flow-through principle.
Step 7 Divide the result of Step 6 by C, the ownership target of 25%.
Step 8 Multiply the result of Step 7 by 9 points to establish the prorata share of points allocated to the indicator.

Step 9 Compare the results of Step 8 and Step 5 and take the lower of the two forward to the ownership scorecard.

Ownership fulfilment

Ownership fulfilment is a sweetener for the measured enterprise to encourage the unconditional handover of economic benefits to Black people. It is achieved when Black shareholders are released from all third-party legal or commercial obligations that withhold, defer or restrict enjoyment of rights associated with shareholding. Examples of these restrictions or obligations are pledges and cessions. The measured entity may claim one point once:

All obligations originating from financing received to obtain the equity ownership have been released in entirety, and

• the full nine points for net value have been obtained.

Bonus Points

The ownership bonus points are used to encourage the participation of Black women and broad-based groups in ownership. If Black women represent 10% of total ownership, then two points are awarded on the ownership scorecard.

If Black people participate in ownership through a broad-based ownership scheme, employee ownership scheme or a cooperative for a minimum of 10% of the total ownership of the business, then a single bonus point is available to the business.

Bonus points are calculated on economic interest held by Black women or priority groups as discussed above. These indicators may not be calculated using the modified flow-through principle. The Black participation may only be calculated using the flow-through principle.

I would like to use this opportunity to address the matter of Black women. Although the participation of Black women in QSEs is only encouraged through bonus points, businesses that expect to cross the QSE threshold need to consider that there is a specific indicator for Black women participation in the generic scorecard. Furthermore, the modified flow-through principle does not apply to the Black women indicator in the generic scorecard. Having 10% Black women ownership in an enterprise, calculated using the flow-through principle, will result in a significantly higher ownership score where the modified flow-through principle is used to facilitate finance for the BEE party.

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