Mittal Diluted in South Africa as Elites Get Steel Stakeby
Local unit proposes $168 million black-ownership deal
Beneficiaries include bankers, a former politician, spokesman
An asset-management board-member, a development-bank finance chief and former investment banker are on course to become major shareholders in ArcelorMittal South Africa Ltd., taking a chunk out of billionaire Lakshmi Mittal’s stake in the continent’s largest steelmaker.
Apportioning a 22 percent stake valued at 2.3 billion rand ($168 million) to black investors, employees and communities is a way for the struggling company to support the government’s strategy of boosting black South Africans’ ownership of the economy.
While the company known as AMSA says the so-called black economic empowerment deal is "broad-based," members of the country’s business elite make up two thirds of Likamva Resources Pty Ltd., which will receive shares. Likamva will get 17 percent of AMSA, paid for through a loan from the steelmaker, and distribute 5 percent of this to communities living near its operations. Employees will receive a further 5 percent.
The producer scrapped a transaction in 2011 that would have benefited President Jacob Zuma’s son, Duduzane after opposition party and labor union criticism.
Black economic empowerment, aimed at redressing the inequality of whites-only rule that ended in 1994, has been criticized for only benefiting a small, often politically connected elite rather than the wider population, where the average annual household income is 120,000 rand, or $8,771. After more than 600 billion rand of such deals took place from 1995 to 2013, Zuma’s government said it must do more to redistribute wealth.
“BEE is a necessary evil in a country like South Africa to level the playing field, but the policy design is defective,” Mzukisi Qobo, an associate professor at the University of Johannesburg, said in an interview. “It encourages a gulf between the politically connected elites who benefit the most from these deals and the wider portion of South Africans.”
The steel producer will sell a 17 percent stake to Likamvaand provide the black-owned company with a loan to cover its cost, Vanderbijlpark, South Africa-based AMSA said in a statement Wednesday. The loan will be paid back through dividends over the next 10 years or through a higher share price. Should the company’s stock reach 27 rand a share after a decade, the whole loan will have been paid back, Chief Executive Officer Wim de Klerk said. The stock closed at 9.46 rand on Wednesday.
Likamva will distribute a 5 percent stake to local communities within two years, it said. Employees will receive a further 5 percent stake through a separate trust.
Likamva, which means “heritage” and “future” in the Xhosa language, is owned by:
- Noluthando Gosa -- 40 percent -- She was a commissioner that helped to design the National Development Plan, which aims to eliminate poverty by 2030. She’s a non-executive director at Investec Asset Management and a former member of the South African Broadcasting Corp.’s board.
- Leslie Maasdorp -- 10 percent -- Chief financial officer of Shanghai-based New Development Bank, funded by Brazil, Russia, India, China and South Africa. Former board member of Barclays Africa Group Ltd. and Telkom SA SOC Ltd.
- Themba Hlengani -- 9.5 percent -- AMSA’s head of corporate communications until December 2013.
- Warren Wheatley -- 11 percent -- chief investment officer of TSS Capital, a financial advisory firm. He’s a former investment banker at Barclays Africa.
- Others include Jabu Moleketi, a former deputy finance minister and current chairman of the Development Bank of Southern Africa, who owns 1.5 percent. Yakhe Kwinana, who’s on the board of president Zuma’s foundation and is a former board member of state-owned South African Airways SOC Ltd owns 1 percent with her daughter.
Almost 60 percent of Likamvu’s shareholding belongs to black women, Gosa said. The largest investors will use their expertise to provide "strategic input" to AMSA, she said.
“We wanted to partner with a consortium where it would not be -- as it’s become known in the South African market -- the ‘usual suspects,’ where you are just perpetuating empowerment among certain regular participants,” AMSA Chairman Mpho Makwana told reporters in Johannesburg.
The company carried out “robust due diligence” on all the investors, he said. They had a good understanding of the steel business and had “chemistry” with the current board, he said.
Lakshmi Mittal, worth $12.9 billion according to the Bloomberg Billionaires Index, is the biggest shareholder in Luxembourg-based ArcelorMittal, which in turn is the majority owner of AMSA. ArcelorMittal’s stake will drop to 54 percent from 69 percent as a result of the BEE deal.
AMSA is on a charm offensive with the public and government after admitting in August that it fixed prices for years on long-steel products and scrap metal. It has also pledged to cut pollution. The company has asked for, and been granted, protection from cheap Chinese imports which has decimated earnings. AMSA hasn’t made a profit since 2010 and raised 4.5 billion rand from shareholders earlier this year.
Likamva started pursuing the deal with AMSA 2 1/2 years ago, before the company said it intended to put one together, Gosa said. She even followed Mittal to Davos, where the World Economic Forum takes place, but was told no asset was for sale. By the time the board took the decision in September 2015, “we already had a head start,” she said.
Asked whether the stake allocated to communities is sufficient, Gosa said: “Five percent of a 10.9 billion-rand company is not small. In two years’ time, I’m sure the market cap will be higher.”