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Ajay Lalu, a partner at Bravura Economic Empowerment Consulting, said on Friday that SPV models were a failure because they were premised on increasing share prices rather than cash flows. It was strange that partners in the first wave of BEE deals, as well as new participants, believed that something that was beyond their control could pay great dividends, Lalu said. He emphasised that BEE moguls such as Tokyo Sexwale, Patrice Motsepe, Cyril Ramaphosa, Lazarus Zim and many workers included in these transactions would soon be "toyi-toying" on the streets because their investments would have been lost.
When the SPV structures were refinanced, as they would be, it would make them even more unsustainable, introducing systemic risk into financial markets, with the potential of big write-offs to the balance sheets of financial institutions, Lalu said. Interest rates on BEE transactions averaged 15 percent, meaning there was a shortfall on the interest cover alone as the average dividend yield on the JSE was only 4. The shortfalls had to be funded by share price appreciation of Analysts have said recently that deals involving the acquisition of shares, with no cash injection from the BEE partners but rather with financing from third parties, could collapse under the weight of high interest rates and volatile equity markets.
Analysts said the transactions likely to find themselves under water were SPV-type deals, which became popular about 10 years ago. Summer is here, and it's time to remove Winter dirt and grime from your trusty ride. Refresh your car's interior with lightning-fast seat steam cleaning at Great American Car Wash.
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