BEE deals can lay foundation for golden stream of income

THERE is something magical about the creation of wealth. The YeboYethu BEE deal is a perfect example of the benefits the capital markets can deliver to those who take the opportunities it has to offer.

It also is an example of what can be achieved when corporate SA plays its role in bridging the wealth gap created by our terrible past.

BEE deals such as this, and even those that have been less successful, serve a purpose, the importance of which can hardly be overstated – to bring the majority of our compatriots into the asset-owning part of our formal economy.

Broad-based measures such as these, along with other nationbuilding endeavours and financial training, will eventually lift many in today’s working classes and the formerly oppressed into the middle class.

Ten years ago, more than 102 000 black people accepted Vodacom Group’s offer to invest a minimum of R2 500 each in the shares of its local operation.

Of these, 60% could not afford to put away more than a humble R2 500. The market smiled on these investors, delivering a constant stream of income and simultaneously laying foundations for building wealth.

That minimum investment in 100 YeboYethu shares is today worth R12 500.

In addition, the investors have each received a total 992c/share in annual and special dividends since 2009, equivalent to a total payout of R992 at the lowest levels.

In a nutshell, these investors have received in cash 40% of their original outlay.

While those who invested in Vodacom Group shares at the same time as the YeboYethu deal have also done well, more than doubling their capital, the real wealth creation has been in the BEE vehicle.

Today the YeboYethu investors own 3.44% of Vodacom SA. Yet their story is far from over. Now that the original deal has successfully run its course, it will be unwound in October.

YeboYethu in its current form will exist no more. But the ship of YeboYethu investors has just come in. A special dividend of R67.28/YeboYethu share will be paid in October. Multiply that by the minimum investment of 100 shares and beat yourself up, as I do, for not having grabbed this lucrative opportunity when it first emerged.

The total special dividend is R3billion.

In place of YeboYethu, Vodacom will set up a new R17.5-billion deal, which it hopes will raise the group’s black shareholding to more than 20%.

Existing YeboYethu investors will swap their shares and receive group shares while remaining invested in the new transaction.

At the current Vodacom share price, the 49.3 million group shares that will be issued to settle YeboYethu, are worth R6.9-billion.

Not many investment opportunities have delivered such a golden stream of income. Even less have built such a solid foundation for the sustainable creation of wealth. In its original deal, Vodacom got many things correct.

The markets also played a favourable part.

Of the most recent BEE deals, MTN Group’s Zakhele Futhi was also successful, delivering to its beneficiaries total returns more than four times their original investment.

So was PSG Group’s Thembeka Capital deal, which delivered about 12 times its original investment when it was unwound.

There are those that were not as successful. Sasol Inzalo jumps to mind.

Here, unfavourable oil markets played as great a role as did the favourable mobile phone markets for Vodacom and MTN.

But Sasol is trying again, and it has refinanced the Inzalo deal at no cost to the original investors. The hope is that key lessons will have been learnt – including by those who failed to take advantage of the great opportunities staring them in the face.

Like yours truly.

Few investment opportunities have built such a solid foundation for the sustainable creation of wealth.