Coronation Fund Managers plans to grow its Black Economic Empowerment (BEE) from a 31% ownership level to over 51% as growing industry pressures mean it might not be able to grow its R632 billion in assets under management (AUM) unless it further transforms.
Explaining why the company has proposed transactions that will involve participation by its employees who are black persons - there are currently 193 - as well as the upliftment of a broad base of beneficiaries, Coronation’s directors on Friday said these transactions were necessary notwithstanding the existing Level 1 BEE contributor status, and 31% black ownership level.
“Coronation estimates the total indicative expense...to be approximately R270 million to R330m. Coronation further estimates the dilutionary impact...on earnings and dividends per Coronation share to be about 2% to 3% - excluding transaction implementation expenses - and 1%, respectively,” said the company.
The share price fell 2.3% to R39 on the JSE on Friday.
The directors said Coronation was facing challenges from not having 51% black ownership due to changing regulatory developments, and requirements by capital allocators and local asset management participants who were placing increased focus on minimum black ownership levels “that substantially exceed the requirements per the Codes”.
The government has outlined a number of black empowerment related targets for different industry sectors in an effort to right racially skewed employment and economic equity levels in the country.
Since 2021, Coronation has maintained a Level 1 contributor status in terms of the Amended Financial Sector Codes of Good Practice on B-BBEE, with, for instance 42% of total assets under management being managed by black employees. Some 64% of its employees are black, of which 57% are black women.
An online search by BR showed that new black empowerment targets for financial services companies proposed this year include that 46% of top management be comprised of black employees, with a split of 26% male and 20% female..
Coronation said it was also unable to participate in industry surveys geared towards asset managers with majority black ownership, which excluded Coronation from participating in certain client mandates from the outset.
The asset manager said it had also experienced outflows that were specifically allocated to asset managers with at least 51% black ownership.
“Accordingly, an enhancement to Coronation’s current level of black ownership is a business imperative,” the directors said. This imperative also aligned the company's goal of substantial and sustainable transformation for the benefit of its stakeholders, the financial services industry and the wider South African community.
Coronation would conclude share subscription and funding agreements that would involve establishing an employee share ownership plan (ESOP) - Coronation ordinary shares would be issued to the Imbewu Trust (ESOP Trust) for black permanent employees. The current market value of these shares was R1.21 billion.
The plans also involve a broad-based ownership scheme whereby Coronation shares will be issued to the Ho Jala Trust (BBOS Trust), a trust that aims to conduct public benefit activities for the benefit of black people. The current value of these shares was R287m.
The Ho Jala Trust would be issued 7.2 million Coronation shares, while the ESOB Trust would be issued 30.37 million shares. Both share issues would be over a notional funding period of 10 years.
“The company will issue the subscription shares subject to a notional funding arrangement, and at the end of the notional funding period the company will repurchase, at the subscription price, the repurchase shares, determined with reference to the notional funding balance on the 10th anniversary of the Notional Funding Commencement Date,” the company directors said.
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