In its prospectus, Telkom lists black economic empowerment (BEE) as a potential risk to its business. The company warns that new laws may require its business customers to use suppliers with empowerment credentials and that, if its shareholder base does not qualify, it may lose business.
Should this happen, the impact on the Telkom business would be disastrous. The company says almost 10% of its revenue comes from government business. Large corporations make up much of the more than 70% of revenue it derives from its business customers. Losing a portion of either or both these markets could leave the company with too little operating capital or in a position where it is unable to maintain debt repayments.
However, those closely involved in empowerment issues believe Telkom`s caution is overblown. It might, in fact, be the largest empowerment company on the JSE Securities Exchange when it lists on 4 March.
The mixture of new shareholders taking part in the global offer is not yet known. However, it is expected that at least 50% of the shares on offer, or 12.5% of the company, will go to US institutions. None of these are likely to meet empowerment criteria; nor does Thintana, the foreign consortium, which owns 30% of Telkom.
The direct empowerment holdings in the company will remain quite small. The Ucingo Investments consortium owns 3%. An exclusion in the lock-up agreement, which makes it impossible for government to sell more shares for a number of years, does allow it to transfer up to 7% of the company to an empowerment group.
But the government holding, which will be a minimum of 38%, also qualifies as empowerment ownership, experts say.
"Legally you have to look at who government represents," says Vuyo Jack, CEO of ratings company Empowerdex. "The government is merely an agent of the people of the country and the people are mostly previously disadvantaged. From that point of view it is a BEE shareholder."
Hasmukh Gajjar, chairman of the Black IT Forum, says state-owned enterprises are not likely to be penalised for a lack of black ownership when rated or evaluated, but would be treated as a special case.
Both also agree that in other areas of importance, such as the diversity of management and employees and company policy, Telkom rates high in anyone`s book.
With the government stake categorised as empowered, and if the full 7% empowerment option is exercised, only 2% plus one share must be acquired by previously disadvantaged individuals in order to make Telkom majority black-owned. This could make it SA`s largest empowerment company.
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