What Capitec hopes its BEE deal will accomplish

The deal ‘rewards our employees who’ve been loyal to us, it aligns the interests of employees and shareholders, and it also increases our BEE points’: Andre du Plessis – Capitec co-founder and CFO.

FIFI PETERS: Today Capitec Bank announced a new BEE deal to improve its empowerment score. It is planning to issue a maximum of around 625 000 new shares to qualifying permanent employees. The deal, which is valued at R1 billion is expected to knock earnings. Capitec did guide on this, and this is why we saw a bit of a knock on its share price on the JSE today.

We get into the mechanics of the deal and what the bank is hoping to achieve with it with Andre du Plessis, co-founder and the CFO of Capitec. Andre, thanks so much for your time. Why is now the opportune time to embark on this new BEE deal?

ANDRE DU PLESSIS: Hi, Fifi and the listeners. The deal is actually offered to all employees, 90% of whom are black staff. We felt that in the last two years the people have really worked extremely hard through the Covid period. Many of them were actually exposed, especially the people in the branches. Since then the economy has been recovering. We did well to align the interests of the staff with that of investors and we actually want to reward all staff who have been with Capitec for a very long period.

So if you’ve been with the company for longer than three years in a permanent position, we’ve invited you to participate in the transaction.

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FIFI PETERS: All right. Just a breakdown of the employees that are invited to participate? Is this a across the leadership line – as even management, black management, is able to participate, perhaps junior management and junior black workers, or is there a cut-off in terms of the seniority of the employee?

ANDRE DU PLESSIS: Everyone from the most junior to the most senior people is invited. The only exclusion are the executive directors and the executive management. They are not participating in the transaction. The aim is really for participation across all levels of staff and senior managers as well, except the directors.

As I said earlier on, if you have been in our permanent employ for three years you can participate. If you’ve been with the company for longer than five years, then you can get a 15% higher allocation. If you are black, you can get a 15% participation on top of that. So if you’ve been here four years and you’re black, then it’s the allocation plus 15%. If you’ve been in the employ for five years and you’re black, it will be the allocation plus 15%. [Sounds like 50%]……3:14

So we are skewing it towards black participation, and part of the transaction is to increase black ownership to get eventually to the 25% mark. At this point in time we’re around 19.4% on the scorecard.

FIFI PETERS: Just talk to us about the financial mechanics of this deal. How much will at cost for employees to participate in getting a share or a couple of shares in Capitec, and what is the projected or potential return, also to the workers?

ANDRE DU PLESSIS: Firstly, we have been ……3:58 average of the market on the day that we issue on the Sens, which will be towards the end of February. Then whatever that price is, 50% of that will be a discount that will go through our income statement. The other 50% will give the employees a loan at repo-plus-1%, which is obviously better than even the best company in South African can lend money at.

After five years, whatever the value of the share is, that belongs to the employees, and then they have to pay us the 50% loan back. If for whatever reason the share price dips to below 50% of what it currently is, the employee doesn’t have to make up the share, and wouldn’t have to repay the loan.

In the meantime they’ve got two voting rights on the share, and they get the dividend that we pay all our other shareholders for their shares.

Read: Capitec co-founder extends hedge over R2.5bn stake

FIFI PETERS: So we are looking at an interest rate of around 4.75%?

ANDRE DU PLESSIS: That’s the interest rate. But, as I said, if it’s too onerous for the employee, they don’t have to pay it. So there’s no reason why every employee who is offered the transaction shouldn’t take it, because there’s no downside to it.

If we can continue to grow the way that we do – and I don’t want to give you a projection of what the growth is, or is going to be – the bottom line is, as the share grows and as the business expands, our employees will actually participate in its success.

FIFI PETERS: Sure. And then what happens if an employee who signs up for the deal today happens to leave the company within the five-year lockup period of the shares that will be issued?

ANDRE DU PLESSIS: They still participate. So It’s not prerequisite of that. The prerequisite is for the people to have been there for three or five years.

Read: Capitec unbundling: Why now?

FIFI PETERS: Okay, good for them. Nonetheless, Andre, beyond improving your own empowerment score, what are the overall hopes that Capitec has in terms of launching this deal?

ANDRE DU PLESSIS: Well, the shareholders need to approve it, and I will speak to the major shareholders in the next couple of days. I think the benefits to the investment are pretty clear in that, as I said, it rewards our employees who’ve been loyal to us, it aligns the interests of employees and shareholders, and it also increases our BEE points.

That is one of those things of doing business in South Africa. So I really do think it’s a win-win for the market, as well as for our employees.

FIFI PETERS: All right, sir, we’ll leave it there for now. Thanks so much for your time. Andre du Plessis is a co-founder and the CFO of Capitec.

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The litmus test will come after 5 years when the benefits vest in the name of the beneficiaries. What will they do with their shares then? Are they capitalists who will remain invested and even buy more shares, or are they consumers who will eat their assets the moment they are able to do so? To incentivize employees is in the interests of all shareholders. To redistribute assets to pacify a socialist government is in nobody’s interest. I suppose this scheme is a combination of both.

End of comments.

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