Smart in­vest­ment in MTN

Ex­ec­u­tives count the days to mas­sive pay­out

Finweek English Edition - - Companies & markets - LLEWELLYN JONES

MTN EX­EC­U­TIVES HAVE just an­other two years to go be­fore they can re­joice in a multi-bil­lion rand pay­out in terms of the scheme whereby em­ploy­ees bought Transnet’s 18% stake in the mo­bile op­er­a­tor in 2003.

So far their profit is in the or­der of R20bn be­fore fi­nanc­ing costs. The direc­tors’ share of this looks like tele­phone num­bers (in­clud­ing an in­ter­na­tional dialling code.) Ac­cord­ing to MTN’s an­nual re­port, 7,9% of New­shelf’s MTN shares worth R1,5bn will ac­crue to CEO Phutuma Nh­leko. Fel­low direc­tors Irene Charn­ley, Rob Nis­bet and Si­fiso Dabengwa get 5,5% each worth just over R1bn, and Santie Botha gets 1,1% (be­cause she ar­rived on the scene late) worth around R220m.

Their good for­tune was high­lighted last week as the ve­hi­cle that owns this stake be­gan to un­wind the hedg­ing mech­a­nisms sur­round­ing the pur­chase fi­nanc­ing.

In 2002 Transnet wanted to sell its stake in MTN but there weren’t many tak­ers around at the tail end of the tech­nol­ogy crash that blighted mar­kets at the be­gin­ning

The direc­tors’ share looks

like tele­phone num­bers.

of the mil­len­nium. At first, the stake was “ware­housed” by Dutch in­vest­ment house Ice Fi­nance while the struc­ture and fund­ing for the em­ploy­ees’ in­vest­ment ve­hi­cle was fi­nalised.

At the be­gin­ning of 2003 it was an­nounced that a new in­vest­ment ve­hi­cle rep­re­sent­ing MTN’s em­ploy­ees, New­shelf 664, had bought 309m MTN shares at R13,90/share for a to­tal out­lay of around R4,3bn. MTN’s share price re­cently touched a high of R95.

As part of the fund­ing ar­range­ments pro­vided by var­i­ous banks, the PIC and Transnet it­self, New­shelf was obliged to en­ter into a hedg­ing trans­ac­tion in re­spect of 65,5m MTN shares to al­low the fun­ders to par­tic­i­pate in the eq­uity growth to com­pen­sate them for the risk they were tak­ing. Re­mem­ber, there was still a lot of un­cer­tainty around the tech­nol­ogy and tele­coms sec­tors at the time, and in­vestors weren’t cer­tain about the po­ten­tial for tele­coms com­pa­nies.

New­shelf is now un­wind­ing those hedg­ing po­si­tions. As­sum­ing the en­tire 65,5m shares were hedged at R20 (against a cur­rent share price of around R90), like the hedge that was un­wound last week, the fun­ders would be sit­ting on a profit of around R4,5bn over and above the in­ter­est they are earn­ing on their loans.

Once the hedge un­wind is com­pleted, New­shelf will be left hold­ing 243,5m MTN shares.


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