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Sep 02, 2011

BBBEE deal benefits employees and communities

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Sappi Southern Africa financial director Colin Mowatt discusses the BBBEE deal between Sappi and Lereko Property Consortium.
AMB Capital|Had Sappi South Africa|Lereko Investments|Lereko Property Consortium|Merchant Bank|Sappi|Sappi Foundation Trust|Sappi Limited|Sappi South Africa|Sappi Southern Africa|Paper Manufacturer|Colin Mowatt
amb-capital|had-sappi-south-africa|lereko-investments|lereko-property-consortium|merchant-bank-company|sappi|sappi-foundation-trust|sappi-limited|sappi-south-africa|sappi-southern-africa|paper-manufacturer|colin-mowatt
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Employees of South African paper manufacturer Sappi are set to benefit substantially from a broad-based black economic- empowerment (BBBEE) transaction between Sappi and black-owned investment company Lereko Property Consortium. The transaction cost R814-million and was facilitated by Rand Merchant Bank.

Sappi has enhanced its commitment to BBBEE transformation through this deal by recognising the role that employees play in the success of the company; attracting and retaining staff, especially skilled black employees; building on Sappi’s commitment to communities; as well as moving from Level 6 black economic-empowerment (BEE) contributor status to Level 3 contributor status.

The BBBEE deal benefits all Sappi’s South African employ- ees, apart from white managers who already participate in an existing Sappi share incentive scheme. The employee share ownership plan owns some 62.5% of the deal, constituting the majority percentage of the shares. The management share ownership plan was awarded 15% of the deal. “This will help retain skilled black managers at Sappi,” says Sappi Southern Africa financial director Colin Mowatt.

The Lereko Property Con-sortium, headed by Lereko Investments and including other beneficiaries such as the Malibongwe Women Develop-ment Trust and financial services company AMB Capital, received 12.5% of the deal. The Sappi Foundation Trust received 10%. The beneficiaries of this trust include the local communities and the grower organisations situated around Sappi’s mills and plantations.

Through this new transaction, Sappi South Africa has maintained its initiative to expand from a Level 6 BEE contributor to a Level 3 contributor. “Had Sappi South Africa been scored in terms of the generic Department of Trade and Industry (DTI) scorecard, we would only have achieved Level 4 status,” explains Mowatt. This is due to the bonus points that the Forestry Charter scorecard awards for increased socio-economic development spend, which are not provided for in the generic DTI scorecard.

Meanwhile, he mentions that Sappi is involved in various community projects, such as the ongoing Project Grow programme, which assists community members in rural areas with aspects of the forestry business, such as financial aid and technical assistance. “The aim of this community project is to provide the necessary assistance to emerging timber farmers, which enables Sappi to create a mutually beneficial relationship with the community residents,” he explains.

Sappi provides various financial assistance programmes, which enables farmers to plant and main- tain new trees. Besides financial assistance, farmers also receive site-suitable free seedlings as well as free technical assistance. “Sappi and the communities are, thus, mutual beneficiaries. Sappi has already bought trees from emerging farmers and new trees have been planted. This money then benefits the surrounding communities through initiatives such as building new schools,” says Mowatt.

Sappi also plays an important role in health-related projects. “Sappi’s HIV/Aids awareness programme offers support to child-headed homes, as well as developing centres where children can receive proper care while their parents are at work,” he explains.

But, besides the various community initiatives that have been established, the BEE transaction creates the additional benefit of employees becoming shareholders. Mowatt says that being given the opportunity to own shares in Sappi is like a long-term savings plan, as the shares in the company are expected to grow in value over time. Thus, it is clear that the intention of the BEE transaction is to lock employees in to prevent shareholders selling their shares too soon, which is not the true objective of BEE. The deal has been structured in such a way that previously participating employees will only be able to sell their shares in 2019. “The benefits of the deal are long term, where employees are given shares, which will provide them with the opportunity to sell them when they have grown in value and are worth more,” explains Mowatt.

Sappi South Africa has played a prominent role in the development of BEE in the past. In 2006, the pulp and paper manufacturer signed a BBBEE land deal, where it sold a 25% undivided share in its plantation land to the Lereko Consortium.

In 2008, the Sappi Limited board and the transformation committee reviewed the 2006 transaction, which led to the decision to restructure the deal in accordance with the BBBEE requirements of the gazetted Forestry Charter of May 2009. “Looking at the requirements of both the DTI’s generic scorecard and the Forestry Charter, it became clear that Sappi needed to do an equity-based empower- ment transaction rather than a property-based transaction,” says Mowatt. With this transaction, Sappi identified that its employees needed to have shares. “Instead of owning 25% of the land, employees will own Sappi shares,” concludes Mowatt.

Edited by: Shannon de Ryhove
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