Sanlam has had to begin unwinding its failed R8bn broad-based black economic empowerment (B-BBEE) transaction implemented in March 2019, reports Moneyweb.

The deal, which saw a 5% stake in the financial services group effectively issued to five new beneficiary trusts and existing empowerment partner Ubuntu-Botho, has been under water since early 2020, when the effects of the Covid-19 pandemic rattled through markets.

The deal boosted Sanlam’s direct black shareholding to 18%, with black economic ownership (including indirect holdings) increasing to 35%.

Of course, no one could’ve predicted a global pandemic, followed by Russia’s invasion of Ukraine and surging global inflation.

The result is that the group’s share price has traded below the R70 issue price of the 111m shares since just one year into the five-year deal.

Sanlam provided half the funding of the transaction, with Standard Bank providing the other half via preference shares in the special purpose vehicle (SPV) and equity-secured funding.

Sanlam’s problem is that the A preference shares held by Standard Bank are secured by Sanlam shares. Further declines in the group’s share price could see a breach of debt covenants which would force the disposal of a ’large block of shares’ which, it says, ‘is likely to negatively impact the Sanlam share price’.

Sanlam admits there is ‘unlikely benefit’ to any of the beneficiaries of the transaction, which include trusts for rural and urban poor black women, professional black women, black youth, black business partners and broad-based groups and group employees.

To remedy this, Sanlam will purchase the A preference shares in the funding SPV from Standard Bank for R2.421bn.

It will fund this from existing cash resources, with a small adjustment for interest between the end of June and when it is finalised.

Full Moneyweb report