Old Mutual is hoping to expand the market for its products

Old Mutual is complying with rules designed to spread ownership of South African firms to the black majority.

The 7.2bn-rand ($1.2bn; �600m) deal is one of the biggest black empowerment deals yet, with the biggest slice of the stake, 40%, going to employees.

This should defuse criticism that such deals usually only benefit wealthy black businessmen.

The deal could also help Old Mutual attract black customers.

Business opportunity

A series of black investment consortia will take 24% of the stake, with the rest going to clients and communities.

Over 500,000 South Africans, amongst all our stakeholders, will have an interest in our success Jim Sutcliffe, Old Mutual chief executive

The two groups splitting the 24% stake are Wiphold, a women's investment fund, and Brimstone, a consortium including groups representing lawyers, doctors and other professionals and led by a selection of black businesspeople and former government officials.

The investors have promised to help build Old Mutual's business, primarily in banking and insurance, in the black community.

The take-up of banking and insurance among South Africa's black majority remains limited, partly because of the country's persistent income imbalances.

Wiphold has relationships with non-governmental organisations and female-run businesses across the country, while Brimstone's constituents have investments in hundreds of other firms.

Old Mutual has long said it backed empowerment not only by allotting shares but also by looking for products designed specificially for black customers.

"The breadth of involvement means that over 500,000 South Africans across all nine provinces, amongst all our stakeholders, will have an interest in our success," said Jim Sutcliffe, Old Mutual's chief executive.

Share issue

Old Mutual is issuing new shares to enable the transaction, which it said would reduce the value of existing shares, which are listed in both Johannesburg and London, by 2.2% and profits by 5.7%.

The relatively small financial impact of the deal meant its stock rose 2.5 pence to 128.75p in London morning trade.

The Old Mutual deal is one of the biggest black empowerment deals to date in the financial services sector, following Standard Bank's 4.14bn rand black empowerment deal and FirstRand's allotment of a stake worth 7.9bn rand.