B-BBEE: Ownership Points from Sale of Assets/Equity/Business Under Statement 102

INTRODUCTION

Statement 102 determines that a Measured Entity (the Seller) that concludes a transaction involving a sale of assets, equity instruments or a business of a Separately Identifiable Related Business to an Associate Entity (the Purchaser), which is owned by Black People, may claim ownership points on its own Ownership scorecard.

A Separately Identifiable Related Business is defined as a business that is related to the Seller by virtue of being a subsidiary, joint venture, associate, business division or business unit, or any other similar related arrangements within the Ownership structure of the Seller.  It is important to note that the Separately Identifiable Related Business must form part of the same chain of ownership and be owned by the Seller.

The purpose of Statement 102 of Code Series 100 is to provide a Measured Entity[1] with an alternative option to score Ownership points, other than selling equity in the Measured Entity.

EQUIVALENCY PRINCIPLES

A Seller will recognise the sale of the Separately Identifiable Related Business to Black People on its Ownership scorecard by calculating an equivalency percentage as if those percentages arose from a sale of equity instruments to Black People in the Seller.

• The equivalency percentage that will be recognised on the Ownership scorecard of the Seller for voting rights and economic interest rights as a result of the qualifying transaction are based on the value of the sale transaction of the Separately Identifiable Related Business as a percentage of the value of the Seller multiplied by the percentage black ownership in the Purchaser as follows:

The value of the Separately Identifiable Related Business    x    % Black ownership of the Purchaser

The value of the Seller

• The net value score that will be recognised on the Ownership Scorecard of the Seller is based on the net value (Value minus any acquisition debt) of the transaction as a percentage of the value of the Seller multiplied by the percentage black ownership in the Purchaser as follows:

The net value (Value minus acquisition debt)

of the Separately Identifiable Related Business    x                    % Black ownership of the Purchaser

The value of the Seller

The net value of the Separately Identifiable Related Business must increase over a period of nine years as prescribed in the Time-Based Graduation Factor[3].  The net value will increase as the acquisition debt of the transaction decrease or the value of the Separately Identifiable Related Business increase.

The Seller will determine the equivalency percentages and net value score based on the value of the Separately Identifiable Related Business, acquisition debt, the value of the Seller and black ownership of the Purchaser on date of measurement for the first three years after the transaction.  The Seller will continue to recognise the equivalency percentages and net value ownership points achieved on the measurement date equal to the equivalency percentages and net value ownership points achieved in year 3 after the transaction.

A Seller seeking recognition of a qualifying transaction in terms of Statement 102 must obtain a review of the transaction value by an independent expert, who is required to opine on the fairness of the transaction value, if the net value calculation is fair and whether the Time-Based Graduation Factor has been applied accurately.   A review by an independent expert will be required annually for three years after the transaction.  The value of the Separately Identifiable Related Business and the Seller will remain as per the reported value in year 3 after the transaction and no further reports from an independent expert will be required after year 3.

QUALIFICATION CRITERIA

Ownership points can only be realized on the scorecard of the Seller in terms of Statement 102 if the following requirements are met:

• The transaction must result in the creation of viable and sustainable businesses or business opportunities in the hands of Black People;
• The transaction must result in the transfer of critical and specialized skills, managerial skills and productive capacity to Black People;
• The sale of asset, equity instrument and business must involve a Separately Identifiable Related Business that has:
  1. No unreasonable limitations or conditions with regards to its clients or customers; and
  2. Clients, customers or suppliers other than the Seller;
• The black shareholders of the purchaser (or their successors) must maintain or improve their B-BBEE shareholding and must hold the asset for a minimum of three years;
• Any operational outsourcing arrangement between the Seller and the Separately Identifiable Related Business must be negotiated at arms-length and on a fair and reasonable basis;
• The transaction should be subject to and independent verification value by an independent expert.

The following transaction do not constitute Qualifying Transactions in terms of Statement 102:

• Transfer of business rights by way of license, lease or other similar legal arrangements not conferring unrestricted ownership;
• Sale of franchises by franchisors to franchisees, but includes sales of franchises from franchisees to other franchisees or to new franchisees.
• A qualifying transaction that includes a repurchase transaction within a three year period after the transaction implementation, even if the transaction implementation is deferred post year 3. A seller cannot have any right to enforce such a repurchase.

Ownership points are subject to existing contracts between the parties to remain in effect on market related terms, subject to market norm service levels.

A Seller cannot claim benefits in terms of Statement 102 and Enterprise and Supplier Development for the same transaction.

[1] A Measured Entity is the entity that is being measured on a B-BBEE Scorecard

[2] The equivalency percentages for Black Women, Black Designated Groups, Employee Ownership Schemes,  Broad-Based Ownership Schemes or Black New Entrants will be calculated by multiplying with the specific type of black shareholder.

[3] The Time-Based Graduation Factor determine the targets over a nine year period for net equity held by Black People to achieve the Net Value points on the Ownership Scorecard.

Year 1 – 10%; Year 2 – 20%, Year 3&4 – 40%; Year 5&6 – 60%; Year 7&8 – 80%; Year 9&10 – 100%.