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Last Updated: Oct 9, 2008 - 10:31:14 AM |
Corporate finance experts and analysts confirmed yesterday that the
market turmoil would make it tougher for new BEE deals to be concluded
using third party funding.
Banks had adopted stricter lending criteria in light of market
volatility, they said.
Some BEE investors would be hard hit because of the debt they incurred
in striking deals. This would make their equity exposure more sensitive
to share prices, said analysts.
All market sectors have been affected, with resources hard hit in
recent weeks.
Imperial, MTN, Barloworld, Sasol and Old Mutual have been identified as
high-profile companies whose BEE deals were either already in distress
or were headed for trouble.
One expert said that because local retail banks put third party debt in
their deals, BEE transactions such as those conducted by Standard Bank,
Absa and Nedbank could be derailed.
The sharp fall in the prices of platinum mining shares meant BEE deals
in this sector could also be in trouble.
Platinum continued to fall early this week as a global recession began
to look possible. Demand for the metal fell as vehicle makers cut
production.
James Formby, the head of corporate finance at Rand Merchant Bank, said
that in cases where the value of the debt outstanding exceeded the
value of the shares given as security, funders would need to call in
loans.
"As depositors in these banks, we would consider it irresponsible if
they did not. This will lead to an unwinding of these deals unless
either the corporate or the BEE company is prepared to put in some more
security," Formby said. Click here!
"Clearly, there is a lot at stake for all parties to make these
transactions work. Other transactions that have not used funding could
also be affected.
"For example, the Absa transaction is an option structure, where the
option needs to be exercised and the shares financed by July next year.
There is still time, and in any event, the transaction can be
restructured if necessary."
One analyst said that although some older deals could also be affected,
the current market disruption could derail BEE schemes that were
concluded towards the last stages of the recent market bull run.
Formby said newer deals would suffer because the share prices were at
their highest when the deals were struck.
He said transactions where the debt was due for a refinance soon were
at risk.
In current market conditions, it might be difficult to refinance them.
Kevin Kerr, the joint head of Investec Corporate Finance, said new BEE
deals financed by third party banks would be harder to conclude because
of higher long-term interest rates and banks' more conservative lending
practices.
"Additional equity layers and company facilitation will need to be
introduced into new BEE deals compared with [deals in] the last few
years."
Rajay Ambekar, the portfolio manager at Cadiz African Harvest, said the
financial market turmoil had affected BEE transactions that were in the
pipeline.
He said these were being reviewed.
"At this stage it would be very difficult for companies to raise
external funding for any BEE deal."
Local markets had experienced a bumper season for the past 36 months
before the global markets started wobbling under the subprime crisis in
the US and Europe.
Source:Ocnus.net 2008
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