South Africa's Broad-based Black Economic Empowerment (B-BBEE) Commission said on Thursday a probe initiated in 2017 into mobile communications company MTN's Zakhele-Futhi scheme had found it to be contrary to the objectives of the B-BBEE Act.
In a statement, the commission said it had issued remedial recommendations to address the defects identified in the scheme, including changes to governing documents such as the memorandum of incorporation and the relationship agreement, to grant black shareholders effective rights, control, participation and economic benefits in respect of their stake.
MTN launched the scheme in September 2016 to replace an existing one that was lapsing in November that year. The initiative, valued at R9.9-billion, was intended to afford qualifying black investors the opportunity to apply for shares in MTN Zakhele-Futhi, which in turn would acquire approximately four percent equity in MTN at a 20% discount, making the black participants indirect shareholders in the company.
The commission said after concerns were registered about the scheme relating to compliance with the ownership scorecard, it had engaged MTN over the contents of the transaction, leading to a formal investigation.
"The commission found that the black ownership held through MTN Zakhele-Futhi is contrary to the objectives of the B-BBEE Act and further that the MTN Zakhele Futhi as a broad-based ownership schemes did not comply with the rules ... of the Codes of Good Practice," it said.
It said MTN had denied engaging in any practice, conduct or arrangement contrary to the B-BBEE Act, in particular any fronting practice or misrepresentation of its B-BBEE status, but expressed willingness to cooperate with the commission and implement changes to the scheme to address the concerns raised.
On the basis of MTN's cooperation, the commission said it had issued final findings which included remedial recommendations to be implemented by the company.
These include amendments to the governing documents to enable MTN Zakhele-Futhi to exercise the rights to nominate representation on the board of MTN and to remove the veto rights MTN has in respect of the trickle dividend and the general dividend that would flow to black participants.
They will also enable MTN Zakhele-Futhi to appoint its own board members who need not be MTN appointees or nominees. MTN is also expected to develop and submit a compliance programme to ensure future compliance with the B-BBEE Act.
"MTN has demonstrated cooperation and willingness to remedy the defects identified by the commission, and the commission will monitor the implementation of the recommendations issued," the B-BBEE Commission said.