State’s sale of stake to PIC raises questions
I can’t say Vodacom is a good investment or not, but there’s more than just investment considerations in this.
POLITICS seemed to have trumped investment considerations in a deal that saw the Public Investment Corporation (PIC) emerge as the buyer of the government’s 13.91 percent stake in Vodacom to raise a R23 billion bailout for troubled power utility Eskom.
News that the government had dangled a 10 percent discount to entice the PIC to conclude the deal also hinted at the desperation to get the sale done.
The discount of R2.66 bn on a total transaction value of R26.6 bn is equivalent to more than what the utility spends in a month to buy diesel to keep the lights on.
Pressure
Although the cash injection should give Eskom some breathing space, analysts wondered about the political pressure the PIC faced in deciding to go with the deal.
One analyst said yesterday that the sale was no better than “shuffling the deckchairs on the Titanic” or “fiddling while Rome burns”.
Recently the PIC has come under fire over suspicion that it panders to political pressure to make some of its investment decisions, a claim that the PIC has vehemently denied.
Even so, the latest deal for the Vodacom stake sparked more questions yesterday about the government’s influence over the PIC, entrusted with investing the government employees’ pension money.
“I can’t say if Vodacom is a good investment or not, but there is clearly more than just investment considerations in this deal, it is political,” said ETM investment strategy analyst Russell Lamberti.
“The important theme here is if you wait until you’re in trouble to sell state assets then you have to sell them at a discount. That’s how it works.”
Lamberti said the government chose Vodacom because any other asset would have given rise to controversy.
“The state knows Vodacom can be sold and still run pretty much as is, whereas Telkom would probably undergo a massive restructuring (so it’s not a good time to sell),” said Lamberti.
Finance Minister Nhlanhla Nene yesterday defended the transaction, arguing that the government opted for the PIC because it offered the best proposal for the deal.
Nene said the PIC would pay the money as soon as all the issues on the legalities of the deal had been finalised.
“It was one of those transactions where we had invested in the private company as government and it does fit the description of a non-core asset.”
“What we want to do is to improve Eskom’s balance sheet so that when Eskom goes to borrow money in the market it does so without much of a problem.”
But the DA raised its concerns about the sale yesterday, questioning what the final sale price per share was, the nature of the “market-sounding exercise” that the government undertook prior to the sale and the name of the organisations that pitched proposals for raising the funds to be allocated to Eskom.
Secrecy
DA spokesman on appropriations Malcolm Figg said the party was worried about the secrecy that surrounded the sale of the Vodacom stake.
“The Minister of Finance (Nene) must assure the public and the millions of government employees, whose pension funds are managed by the PIC, that this transaction was sound and above board, and the PIC was not bullied or coerced into this deal,” said Figg.
Despite the questions, the market largely shrugged off the sale and Vodacom shares soared as much as 4.9 percent to R145.52 before closing up 2.78 percent to R142.56 yesterday.
A leading economist who spoke to Business Report on condition of anonymity, said the secret nature in which the deal was concluded raised more questions than answers.
“There is no guarantee that the transaction would result in Eskom changing its fortunes,” said the economist.
“It is more like some sort of pressure was put on the PIC to assist the government to raise the cash injection it needed for Eskom.”
In March, Nene said the Treasury had approached about 20 financial institutions, mainly banks, to assist it with identifying which non-strategic state-owned assets should be sold to raise the R23bn needed by Eskom.
But yesterday, the Treasury could not give answers on who advised it on this particular deal. It only said the PIC’s offer was in line with pricing quoted by other institutions given the large size of the stake and provided an added benefit of keeping the shares within the public sector and its related institutions.
“In arriving at a decision to dispose of its stake in Vodacom to the PIC, government undertook a market-sounding exercise where numerous organisations presented proposals for raising the funding to be allocated to Eskom,” it said.
The PIC said the purchase was acquired through its engagement with the process that the Treasury ran with various financial institutions. Its chief executive Daniel Matjila said the acquisition would assist the PIC with diversifying its portfolio and risk mitigation.
“Telecommunications is one of the key drivers for both economic and social development,” said Matjila.
“In fact the National Development Plan acknowledges that maintenance and expansion of the telecommunications infrastructure should be prioritised to support economic growth and social development goals.”