Solidarity, a 120-year old trade union with 140 000+ mostly white members, has engaged in a legal strike against the Sasol Khanyisa (BEE) share scheme which it claims is discriminating against white Sasol employees.
Context: the rise and fall Sasol Inzalo:
Khanyisa is Sasol’s second attempt at BEE.
The Sasol Inzalo Scheme was launched about a decade ago when Sasol shares traded around R400 per share and oil cost about $100 per barrel – with predictions that it would go much higher. Sasol effectively offered investors, including its staff (black and white), Sasol shares at R366 each.
At first Inzalo looked very successful: it attracted 208 000 people, making it one of the biggest ever BEE transactions, worth R28 billion.
The deal was straightforward: Investors put some money down (R18 to R44 per share, depending on the quantity) and Sasol arranged bank funding for the balance (using the shares as security). To reduce the risk for the investors the interest rates on the debt were fixed for the scheme’s ten-year life span.
Unfortunately the oil price fell to $55 per barrel and Sasol shares only traded 0.7% up a whole decade later. Shares values need to appreciate substantially to make vendor-finance viable…
In September 2017 Sasol announced that Inzalo would be wound down. Sasol would take the hit on R12 billion still owed to the banks– and with this the market responded by wiping another R7 billion off Sasol’s value the same day.
New schemes for old:
Sasol’s solution is a replacement scheme – Khanyisa – with Sasol offering Inzalo shareholders various options including swapping Inzalo for Khanyisa shares.
Sasol learned from Khanyisa and Inzalo has some key differences:
- It’s vendor-financed (there are no banks lending the money – Sasol is),
- It isn’t linked to the Sasol share price but Sasol dividends instead, and
- The new shares are also only available to Blacks, as per the BEE Act.
The link to dividends (controllable to a large degree by the company) is far less risky than relying on share price (which can be entirely dependent on emotion and other market irrationality) and is a major improvement.
That the shares are only available to Blacks has got Solidarity upset.
Why is Solidarity striking? Why now?
The Inzalo Scheme disappears this week – which explains the timing of the strike.
Solidarity claim that since white Sasol employees cannot acquire shares in Khanyisa (as they could under the Inzalo Scheme) that this is effectively discrimination.
What case does Solidarity have?
While union members’ rights as employees will be determined by our labour laws, within the context of BEE laws things may look different:
There are now three ways to buy/trade Sasol shares:
- Sasol shares (SOL on the JSE). These are highly liquid, available to anyone and 100% tradable. Sasol is one of the JSE’s blue-chips.
- Sasol BEE Shares (SOLBE1 on the JSE – Empowerment Section), and
- Khanyisa shares (which will not be on the JSE and cannot be traded before 2028).
While SOL can be freely traded, the restricted shares look far less attractive: They cannot be bought by anyone (as Solidarity says) and therefore because there is less demand for them, they inevitably will trade at a discount to the SOL shares of which they are a derivative; and the Khanyisa shares cannot be liquidated for ten years.
The issue is really that Sasol is giving funding to Black investors to buy the Khanyisa shares. There is no mention if they will provide funding for White workers to buy Sasol shares directly – but it’s possible.
Will Khanyisa work?
Sasol may still have a loss on Khanyisa as it did with Inzalo. The difference will be that any loss will not all be at the end (2028) but over the ten years. It is vendor-finance after all, with all the risks that entails.
An investor decision:
Sasol shareholders voted to go ahead with Khanyisa (not Sasol management): the decision wasn’t taken as an employer, but as an investor and the distinction is important.
Maybe Solidarity will prove that this is wrong in the workplace, but on capital markets, the shareholders (including many foreigners with little SA history) have decided to promote BEE as being good for Sasol. They believe it better for all sorts of reasons. Ironically some will believe it will improve industrial relations. Some will believe it opens markets. Some believe it’s a responsible and sustainable course of action. But the majority voted that BEE is a good investment.
Let’s hope that the economics work out this time.
Where does this leave Solidarity? Time will tell – they are not the first or last group of potential investors in a company to feel hard-done by the easy access to funding that black investors have – but what other options would Sasol have had?