Smart investment in MTN
Executives count the days to massive payout
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.