What net value actually asks
Of the three things the ownership scorecard measures — votes, economic interest and net value — net value is the hard one. It is where almost every deal fails, and it is the reason a business can hand over 51% of its shares on paper and still fall short on B-BBEE ownership. So it is worth slowing down here.
Net value asks a single, blunt question: how much of the company do your black shareholders really own — not on paper, but after you subtract the debt they took on to buy those shares? A shareholder who was handed shares worth R51 million but borrowed R51 million to pay for them owns, in substance, nothing yet. Net value is the Codes’ way of measuring that reality.
The sum itself is straightforward. Take the value of the shares held by your black shareholders. Subtract the outstanding balance of the loans they took on to acquire those shares. Then express the result as a percentage of what the whole company is worth.
That formula is set by Statement 100, Annexe 100(E), paragraph 3. In plain terms: (value of black-held shares − outstanding acquisition debt) ÷ value of the company. Because the debt is deducted, a heavily financed stake starts near zero and only grows as the loan is paid down — which is the whole story of why funded deals struggle here. You can read the annexe in full on the sources.
Net value carries 8 of the 25 ownership points, which is why it matters so much. The other lines — voting rights and economic interest — tend to look after themselves once the shares are issued. Net value is different: it can move against you every year, and it does not care how generous the deal looked at signing. For how it sits alongside the other lines, see the ownership scorecard.
The rising target and the clock
Here is the part that catches people. Net value is not measured against a fixed target — it is measured against a target that rises over time. In the early years you only have to have paid off a small slice of the value; by year nine you have to have paid off all of it. So a deal that comfortably passes at the start can quietly drift into failure as the bar climbs beneath it.
The clock that governs this starts on what the Codes call the current equity interest date. That is defined as the later of two dates: the date Statement 100 came into force, and the date on which the transaction done to achieve black ownership became effective and unconditional. For a deal you do today, that is the date your transaction became unconditional — which may be a little earlier than the date the shares are actually issued.
Once the clock is running, the percentage of the value that must have been “paid off” for full points runs like this:
The graduation table above is set by Statement 100, Annexe 100(E), paragraph 4; the current equity interest date that starts the clock is fixed by paragraph 4.1, read with the definition in Schedule 1 (GenN 303 of 2019) — the later of the date Statement 100 came into force and the date the black-ownership transaction became effective and unconditional. It is the date from which each year in the table is counted. You can read both provisions in full on the sources.
The lower of two formulas
There is a subtlety that trips up even careful advisers. Net value is not one calculation — it is the lower of two. The gazette gives two formulas and tells you to take the smaller result.
The first formula is the one we have been describing: it deducts the acquisition debt, so it punishes a heavily financed stake in the early years. The second formula is different — it simply measures the black participants’ economic interest against the target for the net-value line, ignoring the debt. Because you take the lower of the two, even a completely unfunded deal — one where nobody borrowed a cent — cannot score full net-value points unless the underlying black shareholding is itself large enough to clear the target.
Both formulas live at Statement 100, Annexe 100(E), paragraph 4.1 (Formulas A and B), and net value is the lower of the two results. Formula A deducts the debt, so it hurts funded deals; Formula B measures the black participants’ economic interest against the target for the net-value line, so it can bite an unfunded deal whose stake is simply too small. You can read the formulas in full on the sources.
Now, one point of honesty about that second formula — and about the target it measures against. The scorecard does not print a number in the target column for net value. It says “Refer to Annexe C”. A 25% target is the figure commonly applied to the second formula by verification agencies, and it is the figure used in the worked examples, because it is the figure the first formula uses. It is a sensible working assumption — but treat it as a disclosed assumption, not a number written in black and white into the Codes.
Refer to Annexe C
Note — That is the entire entry in the net-value target column — the scorecard defers to Annexe C rather than printing a percentage. This is why we call the 25% a disclosed assumption: it is what agencies commonly apply, not a figure you can point to on the face of the target column.
If a great deal turns on the exact target, do two things. Take independent B-BBEE technical advice on your own numbers, and consider asking the B-BBEE Commission for a non-binding opinion on full disclosure of the facts. That is far cheaper than discovering in year nine that a certificate will not issue.
The failure that arrives in year nine
All of this is abstract until you put it on numbers, so here is the deal almost every business does — a funded sale of 51% — run out over ten years. Watch what the shareholders own, what they need, and the points that fall out of the gap.
The 3.2-point floor
There is one more thing about net value that changes how seriously you should take it: it comes with a floor. Ownership is what the Codes call a priority element, which means it is not enough to score some points — you have to clear a minimum.
The floor is 40% of the net-value points. Net value is worth 8, so 40% of that is 3.2 points. Score below 3.2 on net value and you have missed the sub-minimum — which is exactly what happens in year nine of the worked example above, where the points slip to 2.99.
That floor is set by Statement 100, paragraph 3.2.1: the sub-minimum for ownership is 40% of the net-value points. Forty per cent of the 8 net-value points is 3.2 — the very number the worked example breaches in year nine (2.99), which is why the deal fails there. You can read the provision in full on the sources.
The consequence is out of all proportion to the miss. If you drop below 3.2, your whole B-BBEE level falls by one — not your ownership score, your level. A business that would have been Level 4 becomes Level 5, however well it did on skills development, enterprise development or procurement. The discount lands on the total, not on the line you missed.
Two mercies, both from Statement 000 (GenN 306 of 2019), paragraphs 3.3.3.1 and 3.3.3.3. Miss more than one sub-minimum and you are still discounted only one level, not one for each. And the points you did score below the floor still count towards your total — you lose a level, not the points. You can read both paragraphs in full on the sources.
So the practical takeaway is simple. Do not design a deal to the net-value target for this year — design it to survive year nine, when the bar hits 100% and the 3.2-point floor is at its most dangerous. The single best way to see whether your deal survives is to run it: enter your value, stake, funding rate and growth rate on the net-value calculator and watch where you sit against the rising target and the floor, year by year.
Frequently asked questions
Net value asks how much of the company your black shareholders actually own after you subtract the debt they took on to buy their shares — expressed as a percentage of what the whole company is worth. The value of their shares, minus the outstanding balance of the acquisition loans, over the value of the company. It is worth 8 of the 25 ownership points, and it is the line most deals fail on, because a shareholder who bought on borrowed money owns very little until that loan is paid down. See the full ownership scorecard.
Because the target rises over time. In year one only 10% of the value has to be paid off for full net-value points; by year nine, all of it does. If the loan your black shareholder took out grows faster than the business does — because the funding rate is higher than the growth rate — the amount they genuinely own barely moves while the bar keeps climbing. A deal like that can pass for eight years and then fail in year nine, by which time it is old and nobody is watching it. Model your own numbers on the net-value calculator.
Not quite. The scorecard does not print a number in the target column for net value — it says “Refer to Annexe C”. A 25% target is commonly applied by verification agencies, and it is the figure used in the worked examples, because it is the figure the first (debt-deducting) formula uses. Treat it as a disclosed assumption rather than a number written into the Codes. If a great deal turns on it, take independent B-BBEE technical advice and consider asking the B-BBEE Commission for a non-binding opinion on full disclosure of the facts.
Ownership is a priority element, so there is a floor you must clear: at least 40% of the net-value points, which is 3.2 of the 8. If you miss it, your whole B-BBEE level drops by one — not your ownership score, your level. A business that would have been Level 4 becomes Level 5, no matter how well it did elsewhere. If you miss more than one sub-minimum you are still only discounted one level, not one for each, and the points you did score below the floor still count towards your total.