LETTER: BEE a trap for some investors
BEE companies have become prisoners of the laws designed to promote their success
Trade & industry minister Ebrahim Patel’s statement that “BEE does not faze investors”, made after he struck a deal with PepsiCo on its takeover of Pioneer Foods, deserves reflection.
Consider the BEE investment holding companies HCI, Brimstone and ARC. Despite their reputable and highly regarded management, these companies now trade at huge discounts. Over the past year HCI has fallen about 75%, ARC is down 60% and Brimstone is down 31% (which is misleading as it is untradeable, and the best bid is currently 66% below its last trade). BEE shareholders who invested in these companies have become paupers.
BEE companies have become prisoners of the laws designed to promote their success in that they are locked into their existing investments. For example, Brimstone cannot sell or unbundle its highly rated Sea Harvest stake as this would lead to Sea Harvest losing its empowerment credentials and right to fish. Similarly, HCI has not been able to sell or unbundle its Tsogo Sun casino holdings as Tsogo would then lose its BEE credentials and right to be a casino operator.
Investors penalise investment holding companies that cannot mobilise their underlying holdings as this is a huge opportunity cost, and consequently investors have placed huge discounts on these BEE counters. This negates their ability to raise new capital, which makes a mockery of the BEE counters being classified as investment holding companies.
And it gets worse. Apart from not being able to raise capital, in HCI’s case it has been forced to buy back shares from white shareholders to preserve its BEE credentials. The result has been a large chunk of debt at the centre, making HCI extremely vulnerable to crisis.