The Event, Technical and Production Services Industry B-BBEE Sector code Scorecard – Ownership, Part 2

This is the fourth article in a series of articles discussing the Event, Technical, and Production Services Industry B-BBEE Sector Code Scorecard.

In this second of three articles dealing with the Ownership Element, we will discuss BROAD-BASED OWNERSHIP SCHEMES AND EMPLOYEE SHARE OWNERSHIP PROGRAMMES, PRIVATE EQUITY FUNDS, SECTION 21 COMPANIES AND COMPANIES LIMITED BY GUARANTEE, TRUSTS, OPTIONS AND SHARE WARRANTS, and EQUITY INSTRUMENTS CARRYING PREFERENCE RIGHTS. A third Ownership Element article will discuss the applicable rules and examples of Mandated Investments.

BROAD-BASED OWNERSHIP SCHEMES AND EMPLOYEE SHARE OWNERSHIP PROGRAMME

Black Participants in Broad-Based Ownership Schemes and Employee Share Ownership Programmes holding rights of ownership in a Measured Entity may contribute:

1. a maximum of 40% of the total points on the ownership scorecard of the Measured Entity if they meet the qualification criteria set out in Annexe ETPSI-100 (B) and Annexe ETPSI-100 (C).
2. 100% of the total points on the ownership scorecard of the Measured Entity if they meet the additional qualification criteria set out in Annex ETPSI-100 (B) and Annexe ETPSI-100 (C).

PRIVATE EQUITY FUNDS

1. A Measured Entity may treat any of its Ownership arising from a Private Equity Fund as if that Ownership were held by black people, where the Private Equity Fund meets the following criteria: 1.1. At least 51% of any of the Private Equity Managers’ Exercisable Voting Rights associated with the Equity Instruments through which the Private Equity Fund holds rights of ownership, must be held by black people;
   1.2 At least 51% of the Private Equity Fund’s Executive Management and Senior Management must be Black People.
   1.3 At least 51% of profits made by the Private Equity Fund after realising any investment made by it, must by a written agreement, accrue to black people;
2. The term profit in this instance is deemed as profit from the operations of the Private Equity Fund Manager and the carried interest that the Private Equity Fund Manager (and/or its associated entities, provided that at least 51% of the profits of the associated entities accrue to the Private Equity Fund Manager) receives after realising any investments made by it;
3. The Private Equity Fund manager must be a BEE Owned Company as defined; and
4. The Private Equity Fund Manager must seek to invest at least 51% of the value of funds under management in companies that have at least a 30% direct Black shareholding using the Flow-Through Principle.
5. The Private Equity Fund Manager can facilitate direct Black shareholding at the time of entering into the transaction should the target company not meet the requirement of at least 30% Black shareholding at the time that the transaction is concluded;
6. This determination will be made at each measurement date and the status given to the Private Equity Fund Manager will be applicable for a period of 12 months;
7. In recognition of the fact that it is currently a challenge for Private Equity Fund Managers to find companies to invest in that already have a significant Black shareholding, in practice it should be allowed to achieve the 51% target over a period of time based on the formulation detailed below. (It must be noted that this formulation is in line with that of the Net Value calculation). This rule will apply to all investments made after the effective date of this ETPSI Sector Code.
8. Within one year from the commencement date, more than 5% of the value of funds invested by the Private Equity Fund must at all times be invested in enterprises that have at least 30% direct Black shareholding;
9. Within two years from the commencement date, more than10% of the value of funds invested by the Private Equity Fund must at all times be invested in enterprises that have at least 30% direct Black shareholding;
10. From the first day of the third year to the last day of the fourth year from the commencement date, more than 20% of the value of funds invested by the Private Equity Fund must at all times be invested in enterprises that have at least 30% direct Black shareholding;
11. From the first day of the fifth year to the last day of the sixth year from the commencement date, more than 40% of the value of the funds invested by the Private Equity Fund must at all times be invested in enterprises that have at least 30% direct Black shareholding;
12. From the first of the seventh year to the last day of the eighth year from the commencement date, more than 40% of the value of the funds invested by the Private Equity Fund must at all times be invested in the enterprises that have at least 30% direct Black shareholding;
13. From the first day of the ninth year and beyond, at least 51% of the value of the funds invested by the Private Equity Fund must at all times be invested in enterprises that have at least 30% direct Black shareholding;
14. It should be noted that the measurement of at least 51% of the value of funds invested by any Private Equity Fund that must be invested in enterprises with at least 30% direct Black shareholding is to be measured with reference to the cost of the investment made by the Private Equity Fund;
15. In the case of Private Equity Funds that were fully invested prior to the effective date of this ETPSI Sector Code, investments by the fund managers will be considered as being made by Black people if the Private Equity Fund Management entities meet the following criteria: 15.1 At least 51% of any of the Private Equity Fund Manager’s Exercisable Voting Rights associated with the Equity Instruments through which the Private Equity Fund holds rights of ownership in a Measured Entity, must be held by Black people;
    15.2 At least 51% of the profits accruing to the Private Equity Fund Manager after realizing any investment made by it, must be by written agreement,
    accrue to Black people; and
    15.3 Private Equity Fund Manager must be a B-BBEE-owned company.

SECTION 21 COMPANIES AND COMPANIES LIMITED BY GUARANTEE

1. A Measured Entity may elect to include or exclude Section 21 companies or companies limited by guarantee for the purposes of measuring ownership in terms of this statement;
2. A Section 21 company or company limited by guarantee that houses a Broad-Based Ownership Scheme or an Employee Ownership Scheme is subject to the provisions governing those types of schemes and not to this paragraph.
3. When a Measured Entity elects to exclude such companies, it can do so by excluding up to 40% of the level of their ownership completely from the determination of its compliance with the ownership target.
4. A Measured Entity electing not to exclude section 21 companies or companies limited by guarantee when it is entitled to do so, may either treat all of that ownership as nonblack or obtain a competent person’s report estimating the extent of black rights of ownership measurable in the Measured Entity and originating from those section 21 companies or companies limited by guarantee.
5. Black Participants in a Section 21 Company or a company limited by guarantee holding rights of ownership in a Measured Entity may contribute:
6. A maximum of 40% of the total points on the ownership scorecard of the Measured Entity, if they meet the qualification criteria for Broad-Based Ownership Schemes and Employee Share Ownership Programmes, set out in Annexe ETPSI-100(B) and Annexe(C) respectively.
7. 100% of the total points on the ownership scorecard of the Measured Entity if they meet the additional qualification criteria set out for Broad-Based Ownership Schemes and Employee Share Ownership Programmes in Annex ETPSI-100(B) and Annexe (C) respectively.

TRUSTS

1. Black Participants in a Trust holding rights of ownership in a Measured Entity may contribute: 1.1 A maximum of 40% of the total points on the ownership scorecard of the Measured Entity if the trust meets the qualification criteria for Trusts set out in Annexe ETPSI-100(D).
   1.2 100% of the total points on the ownership scorecard of the Measured Entity if they meet the additional qualification criteria set out for Trusts in Annexe ETPSI-100(D).

OPTIONS AND SHARE WARRANTS

1. Exercisable voting rights and Economic interest will be recognised where a Participant holds an instrument granting the holder the right to acquire an Equity Instrument or part thereof at a future date if the following requirements are met:
   1.1. The Exercisable Voting Rights attached to that instrument are irrevocably transferred to the holder for the option period and are exercisable by the holder before acquiring the Equity Instrument;
   1.2. The value of any Economic Interest is irrevocably transferred for the holder for the option period and paid to the holder of that instrument before the exercise of that right.
   1.3. The value of an instrument must be determined by using a Standard valuation method for calculating the Net value.

EQUITY INSRUMENTS CARRYING PREFERENCE RIGHTS

1. An Equity Instrument carrying Preferential Rights is measurable in the same manner as an ordinary Equity Instrument.
2. An Equity Instrument carrying preferent rights that has the characteristics of a debt, regardless of whether the debt is that of an Entity or a Participant, is an ordinary loan. If the debt is that of a black Participant, it may be subject to measurement under Net Value.
3. In evaluating an instrument that has a hybrid nature including the characteristics of a debt, only that portion that represents a debt, will be measured under current equity interest. The remainder is measurable as an ordinary equity instrument.