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Foskor’s R350m BEE scheme collapses

CITY-PRESS.NEWS24 / 30 JUNE 2019 - 07.21 / STAFF REPORTER

Legal action is afoot as workers allege foul play on the part of the company, which has reneged on promised payouts, citing nonprofitability

A BEE share ownership scheme at Foskor – the fertilizer and chemicals producer with majority state ownership – which was valued at more than R350 million, has crashed, leaving the dreams of more than 1 800 employees in tatters.

Details regarding the collapse of the Kopano Foskor Employee Share Ownership Plan (Esop) are sketchy, but City Press can confirm that employees did not receive their payouts when the scheme matured on March 30 last year.

In 2009, Foskor set up the Esop Trust to acquire a stake on behalf of its workers.

In 2010, Foskor, through the Esop Trust, borrowed R147 million from the Industrial Development Corporation (IDC) to buy a 6% stake for about 1 800 qualifying employees.

Foskor is owned by government through the IDC, which owns a 59% stake in Foskor.

When the share scheme was implemented, Esop’s 6% stake at Foskor was worth R210 million.

At that time, Foskor was valued at R3.5 billion.

The company’s 2017 financials valued Esop at more than R8 billion.

The agreement between the Foskor Esop Trust and employees was that, when the shares matured in March last year, employees would become direct shareholders in the company if it were to list on the JSE.

If Foskor failed to list, management had promised that employees would receive cash payments equivalent to the value of their share.

Foskor did not list on the JSE in March last year and those employees who are members of the share scheme did not get cash payouts.

A prospectus distributed to members of the scheme earlier this year states: “For the first five years, you may not sell your units. After the first five years [from June 2016], you can start selling your units if you want to. You don’t have to sell your units if you don’t want to.

“Whatever you have left by the end of Esop at March 30 2018 will either become direct shares in Foskor if the company is listed on the JSE by then; alternatively, if Foskor is not listed, you will get a cash payment.”

A memorandum circulated within Foskor two months ago reveals that the share scheme has collapsed.

The memo states: “The negotiations with the leadership of the National Union of Metalworkers of SA [Numsa] have not yielded any results to call the strike off.”

This is in reference to a protracted strike by workers at Foskor Richards Bay, which took place earlier this year. Grievances included pay progression, mismanagement, health and safety issues, and Esop payments.

“The main issue currently in dispute is Esop, on which Numsa has put a R25 000 demand, which we are unable to honour due to the fact that the scheme has collapsed, due to the nonprofitability of the company,” said the memo.

Following the strike, Foskor decided to pay all employees who were part of the share ownership scheme a once-off R7 000 “ex gratia” payment.

In an agreement signed by the company and Numsa, Foskor said the payment was not in lieu of Esop, but a settlement to “promote peace and stability”.

According to the agreement, “all employees [who were part of the scheme] shall be paid an after-tax, ex gratia amount of R7 000 per employee, in which case the parties agree that the current and future demand on the defunct Esop scheme shall henceforth cease to exist.

“The payment is not in lieu of Esop, but a settlement of a mutual interest matter, and to stabilise the business and promote peace and stability in the operations. The company undertakes to consult the union when a new scheme to replace the Kopano Trust is developed.”

But not all members of the scheme accepted the R7 000 payment.

Regarding the scheme’s collapse, Foskor spokesperson Frans Mokhondo said: “It is critical to note from the outset that the performance of the scheme was linked to the performance of Foskor. Given Foskor’s performance, it means the outstanding loan related to the Kopano employees’ trust as at March 2018 is substantially more than the shares that would have been allocated to eligible employees. Therefore, the trust has failed to pay for these shares.”

Because the trust failed to repay the IDC loan, Mokhondo said no payment was forthcoming to members of the scheme.

“Nothing is due to employees as the loan in question was never repaid,” he said, adding that it was important to note that the IDC had sold the shares to the trust at a discount.

He did not explain what had caused the scheme to collapse, nor did he explain what happened to the R147 million that the IDC had leant the trust to buy the shares. The IDC, he said, had not invoked an event of default on the trust.

The trust still exists and continues to function normally, holding annual general meetings and producing financial reports, he added.

About 40 members, some of them former employees of Foskor, are now preparing to drag Kopano Trust and Foskor to court over the collapse of the scheme.

Advocate Thembinkosi Gumbi, who is representing the group, said: “We are in the process of gathering information to prepare for trial. We will sue both Foskor and the trust over the collapse of the scheme. We want to know what happened. For more than a year now, we have been requesting financial statements and minutes of meetings, but nothing is forthcoming.”

Gumbi has also laid a complaint with the BEE Commission.

In his affidavit to the commission, Gumbi argues that Foskor used its employees just to comply with BEE regulations, stating: “The main reason for the scheme was to ensure compliance with broad-based BEE policies as well as the Mining Charter.”

IDC spokesperson Zama Luthuli said the state-funding parastatal sold a portion of its shares in Foskor to a company, which is 100% held by Esop.

To pay for the IDC shares in Foskor under the sale agreement, IDC funded the employee trust through preference shares. She said: “The trust received ordinary shares in Foskor and owed an obligation to the IDC, which was to be repaid via dividends.”

Luthuli said the Kopano trust was not in breach of contract as the IDC had not yet sent a request for payment, as stipulated in the terms of agreement.

The IDC was investigating options to restructure the share ownership scheme, she added.

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LINK : https://city-press.news24.com/Business/foskors-r350m-bee-scheme-collapses-20190701

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