1. Net Value Transfer Requirement
1.1. This requirement of Ownership was enacted to address phantom ownership where black names would appear on shareholder registers without value ever accruing to those black shareholders. This was frequently the case in funded structures where interest rates were greater than the sum of dividends and share price appreciation
1.2. Net Value Transfer (“NVT”) is measured according to two formulae. The lower result of the two determines a company’s NVT score
1.3. Formula A requires companies to transfer a targeted portion of their Equity Value of the black shareholders unencumbered and free of debt over a period of eight years:
1.3.1. Equity Value held by black shareholders unencumbered by debt is measured as a percentage of the Equity Value of the company. This is called Deemed Value
1.3.2. The target for Deemed Value is a stepped function increasing annually over a period of eight years (Time-Based Graduation Factor)
1.3.3. If the sub-minimum of 40% of the target is not achieved, the company will be discounted an empowerment level
1.3.4. In order to avoid being discounted an empowerment level, a company must transfer a minimum of 10% of the Equity Value in the company to black shareholders over an eight-year period unencumbered and debt-free
1.4. Formula B requires companies to transfer a targeted portion of their Equity Value of the black shareholders as a percentage of the ultimate target.
1.4.1. This target is 25% for companies subject to the Generic Scorecard
1.4.2. The target applies from the inception of the ownership transaction
2. How does the Time-Based Graduation Factor work?
2.1. The Time-Based Graduation Factor is a function that stipulates the proportion of the Equity Value of the Measured Enterprise (Deemed Value) that should have been transferred to black shareholders on an annual basis. The table showing the percentage that must be transferred is shown below:
3. When does the eight-year Net Value Transfer period start?
3.1. The eight-year period starts at the date of inception of the first BEE Ownership transaction entered into by the company.