Elon Musks’ Starlink – a constellation of low earth orbit (LEO) satellites offering high-speed, l0w-latency bandwidth to anywhere on earth – needs to comply with local laws if they are to operate in South Africa.
Currently, one of these license requirements is that 30% of the equity in the SA operation belongs to “historically disadvantaged groups”.
While Starlink has launched successfully in neighbouring countries, it’s not in South Africa because of this requirement. Starlink has, following a meeting between President Ramaphosa and Elon Musk in 2024, applied to ICASA (the telecommunications regulating authority) for a reconsideration of these rules.
Starlink proposes that ICASA align the requirements for Satellite operators with the broader ICT sector code. Specifically, their submission to ICASA suggests that Equity Equivalents be considered as an acceptable form of BEE ownership (they are widely accepted in other sectors and the generic codes).
As a recap, Equity Equivalents are one of the methods of recognising ‘deemed ownership’ (where black people don’t have actual shares in the company, yet BEE ownership is recognised).
Equity Equivalents are are only available as a BEE ownership option for foreign multinationals that don’t issue shares to locals elsewhere in the world. In most instances, they work as follows:
- The local (South African) operation is independently valued using the DCF methodology.
- 25% (if that’s the ownership requirement, which it is in the Generic scorecard) of the value is then invested into Black businesses over a period of 8 years, under the supervision of the DTI, but any % is workable.
- If this is done, the SA operation is deemed to be 25% Black owned, despite it having no actual black shareholders.
Equity equivalents sound great, but they face some problems:
- They are not available to South African companies per se, only to SA subsidiaries of foreign multinationals.
- They take a long time to get approval – essentially each is a bespoke application to the DTI
- They have ongoing DTI supervision. Communists overseeing capitalists doesn’t make for easy going.
- The DCF valuation requirement could over-value the operation, making the transaction unaffordable
BEE ownership through Private equity is a better alternative, for Starlink, and possibly you.
Let us explain:
It’s possible, using the BEE private equity rules, to achieve something very similar to the equity equivalent but with the following advantages:
- The solution is available to any company operating in South Africa (local or foreign owned).
- A variety of independent valuation methods may be used, making it potentially more affordable.
- DTI approval isn’t required. So the process is much faster and lower admin.
- Oversight is provided by skilled Private Equity professionals, licensed under FAIS.
- The investment made into black businesses can be highly strategic: you can invest into adjacent businesses that boost your competitiveness…but you can also invest into blue chip businesses – the choice is yours.
- It’s entirely legit, passing annual muster with verification agencies and the B-BBEE commission (for reportable transactions).
Tusker has a 8+ year track record of doing these Private Equity transactions to achieve very similar outcomes to the Equity Equivalents but with none of the drawbacks. We currently manage over ZAR 1.2Bn of ‘BEE equity’ for our clients and would welcome an opportunity to explore what can be done for your business. Please contact us to learn more.
