EMPLOYEE SHARE TRUSTS

Monday, June 07, 2004
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The government’s Policy Document on broad-based empowerment released in March 2003 provides that one of the policy objectives of BEE is to increase the ownership and management of economic activities by community and broad-based enterprises, such as employee share trusts.
Many of the recent BEE transactions have involved the transfer of shares to existing or newly created employee share trusts.  Generally, the main beneficiaries of these shares will be black employees at all levels of the organisation.  The issue of shares to employee share trusts has two main advantages, namely:
• it satisfies the policy objective of achieving a level of broad-based ownership and obviously increases the level of ownership of enterprises by black persons; and
• the schemes serve to reward and incentivise employees at all levels of the organisation.
Several large JSE-listed companies have used employee share trusts as a cornerstone of the structures employed to transfer ownership and control to black persons.
MTN, a large JSE-listed cellular telecommunications company, is regarded as one of South Africa’s most successful black controlled groups.  In December 2002, MTN executive directors lead a management buy-out and acquired Transnet’s 18.7% stake in MTN.  These shares are being held in trust for management and staff (approximately 2500 beneficiaries) employed by MTN and its subsidiaries in South Africa and Africa.  The benefits in the shares will vest in the staff members over a period of 6 years but will not be tradable until all funding commitments have been met.  Approximately 70% of the share trust beneficiaries are black.  Senior management will benefit from a 70% allocation and 30% is allocated for the other employees.  The deal has been funded mainly by the public investment commission.
The Imperial Group, a large JSE-listed transportation group, announced a BEE transaction in December 2003 that will see it transfer 10.1% of its equity to Ukhamba, a black-owned investment company formed in 1998 as a joint venture between Imperial and the Ukhamba Trust.  The Ukhamba Trust gives historically disadvantaged employees of Imperial an opportunity to purchase an interest in Ukhamba through the purchase of Ukhamba unit trusts.  The ultimate beneficiaries of Ukhamba include 2200 historically disadvantaged employees of Imperial and this will extend to eventually include all the historically disadvantaged employees of Imperial (approximately 14200 persons).
ABSA Bank has, as part of its recently announced BEE deal, made available an additional 1% of its share capital to an employee share trust, in order to broaden the share ownership base among its staff.