The transaction, together with the residual BEE shareholding from the two previous transactions, will result in an effective 30percent BEE shareholding in PPC South Africa Holdings, making the company compliant with the Mining Charter.
Shares in PPC closed yesterday 6.59percent lower on the JSE at R7.23.
The transaction value is equivalent to 16.91percent of PPC’s market capitalisation on Tuesday and based on a derived intrinsic equity value of R10.2billion for PPC SA, before adjustments for a non-controlling and unlisted interest.
Called PPC Phakama, meaning “rise up” in Zulu, the transaction will result in PPC’s equity shareholding in PPC South Africa being reduced from 100percent to 74.6percent.
This is a departure from PPC’s two previous BEE transactions, which were implemented at listed company level and resulted in PPC having a 20.8percent BEE shareholding at listed company level.
This was deemed to be equivalent to 26percent in the group's South African operations.
Sibonginkosi Nyanga, an analyst at Momentum Securities, said PPC had no choice but to implement the transaction, because the Mining Charter required companies at all times to have at least a 26percent BEE shareholding.
Nyanga said PPC’s R4bn rights offer in 2016 significantly diluted the company’s BEE shareholding to between 5percent and 6percent and the company was facing pressure from the Department of Mineral Resources to increase its BEE status back to above 26percent.
“Some of PPC’s mining rights would be at risk if it was not able to come up with a new BEE structure this year,” he said.
Another analyst, who did not want to be named, said the company was proceeding with the transaction without seeking shareholder approval, despite shareholders being interested parties to the transaction.
He said one analyst had expressed concern about the fairness opinion, because it was done by KPMG, whose credibility was dented by work it did related to the Gupta family and state capture.
In terms of the transaction, PPC employees would hold a 9.8percent direct shareholding in the company's South African businesses, a community development trust and indirect equity shareholding of about 8percent, and eligible black entrepreneurs allocated a 7.6percent direct equity shareholding.
The trust will consist of communities, which are not yet confirmed, residing in and around the areas in which PPC SA operates, while the selection of participants falling into the black entrepreneurs category has not yet been finalised.
The transaction will be facilitated via a notional vendor funding structure over a 10-year period.
Johan Claassen, chief executive of PPC, said the transaction demonstrated PPC’s approach to long-term sustainable value creation and hoped it marked the opportunity to create value for employees and simultaneously grow and build PPC into a formidable company.
Tryphosa Ramano, chief financial officer at PPC, added that the transaction reflected their commitment to broad-based transformation in line with the country’s socio-economic imperatives.
PPC said it had received a fairness opinion from an independent expert, confirming the transaction was fair to PPC shareholders, which had been submitted to and approved by the JSE.
Claassen said PPC had made a concerted effort over the past 18 months to ensure the scheme was fair and equitable for eligible PPC SA employees and communities.
“The success of the PPC Phakama transaction and the size of the ultimate benefit to participants will be determined by PPC’s performance and the dividends over the 10-year period.
“The dividends are driven by the company's profitability, to which emvaluable contribution,” he said.
The transaction would become effective once the agreements were approved by the regulatory authorities.