Black investors still far from cashing in chips
Black Economic Empowerment | Despite great expectations a few years ago, many people ended up with thinly traded shares that sell for less than their true value
THEY were all the rage a few years ago, but many people who invested in black empowerment schemes like Sasol’s Inzalo, MTN’s Zakhele and Vodacom’s YeboYethu are wondering if they’ll ever see the rich payday they expected.
While share prices in some BEE schemes soared, like MultiChoice and SA Breweries, other schemes have been far less successful.
This is partly because of strict rules that stipulate only existing shareholders or non-whites can buy the shares, and partly because of a small pool of potential buyers.
When these poorly performing shares do trade, they mostly sell for less than their true value.
For shareholders in some schemes, including Media24’s Welkom Yizani, MTN’s Zakhele and Vodacom’s YeboYethu, restricted share trading is expected only later this year.
Where trading is allowed, including for MultiChoice’s two Phuthuma Nathi schemes, strict rules are in place to ensure shares trade hands only between black investors.
MTN’s Zakhele shares will begin trading over the counter in November. Only existing shareholders can participate, and shareholders will remain under the lock-up agreements until 2016, says MTN’s investor relations executive Nik Kershaw.
Equally, Vodacom’s YeboYethu shares will start trading over the
If MultiChoice continues to do well, dividends received by shareholders should increase
counter in mid-October, says Vodacom spokesman Richard Boorman.
Even Sasol’s BEE schemes haven’t produced the flurry of riches some expected.
There are few shares available to be traded in Sasol’s Solbe1 scheme, the only empowerment shares listed on the JSE’s BEE platform and its Inzalo shares, which trade over the counter, says Craig Gradidge, investment specialist at Gradidge-Mahura Investments
Sasol’s Solbe1 shares were sold in 2007 for about R366 a share, but are now trading below at R325 a share. At least the Inzalo shares are in the money: investors paid R18.30 for the first 100 shares, and thereafter R36.60 — and these shares are now trading at around R53.05.
“Solbe1 is on a dividend yield in excess of 6% per year and a discount to Sasol shares of around 21%.
“This is moderately attractive for the patient investor. One could wait for the discount to widen in order for attraction levels to increase.”
He has a hold recommendation on the Solbe1 shares, but would recommend investors buy more shares if the discount widens.
Inzalo seems “reasonably valued” at the moment, he says, although debt levels remain a concern.
“The interest rate cycle could turn up in the coming 12 months.
“Unless this is accompanied by an increase in the Sasol ordinary share price, the current Inzalo price could prove to be a selling opportunity. Inzalo is for the risk taker as it is a geared play on Sasol.”
Investors with an appetite for risk may also want to look at the BEE schemes of African Bank, whose own share price has been battered over fears of its exposure to unsecured loans.
African Bank’s Eyomhlaba, launched in 2005, is trading at about R8, compared with the company’s net asset value of R15.15.
Hlumisa, African Bank’s second BEE scheme launched in 2008, is trading at R7 a share, a 30% discount to its current net asset value of R10.66 and virtually unchanged from the R7 a share the public paid five years ago.
The value of their shares might have dropped thanks to the pummelling that African Bank has suffered, but the silver lining is that BEE investors in these schemes have at least had more than R30-million back in dividends.
Investors in MultiChoice’s Phuthuma Nathi have more reason to smile.
Shares in the two schemes were sold in 2006 and 2007 at R10 a share, and are now trading at R67, while investors received R4.21 per share in dividends over the period. In recent weeks, the board recommended a total dividend of 148.15c a share.
While trade is taking place in Phuthuma Nathi shares — more than 16 000 deals were done in the past financial year involving more than 10.9 million shares — more than 87% of shareholders have held on to their shares.
The scheme’s debt is also almost paid off, dropping from R40 a share in 2006 to R8 after the payment of the special dividend.
“If MultiChoice continues to do well and is able to pay dividends, the preference share debt will be paid off in the coming years and the amount of dividends received by shareholders should increase over time,” it said.
Not all deals have been so successful. MultiChoice’s sister compa- ny, Media24, which did a similar deal offering shares at R10 to the public, had to restructure in 2009 and extend its restricted period by two years to December 2013.
Construction company Aveng had to restructure its Qakazana BEE transaction, done in 2004, to lock in the R941.8-million value created by the deal and preserve its empowerment status. The scheme is expected to pay its first dividend this year.
The group’s financial controller, Craig Bishop, believes the deal is not disappointing despite the performance of the underlying assets in the construction industry.
SAB implemented its BEE share scheme in 2010. Since then, it has paid more than R335-million in dividends to its BEE shareholders and the SAB Foundation.
A retailer shareholder who bought 317 shares in 2010, at a price of R100, has already received more than R2 000 in dividends. SAB’s Zenzele shares vest in 2020.
Standard Bank’s Tutuwa scheme, launched in 2004 and led by Saki Macozoma’s Safika Holdings and Cyril Ramaphosa’s Shanduka Group, also included 3 000 black bank managers, 6 100 black employees, blackcontrolled NGOs and 250 small and medium-sized businesses.
By the end of May, Tutuwa had created wealth of R7.6-billion, comprising R1.86-billion of cash distributions to participants and R5.7-billion of unrealised value in the structure, arising from the increase in the group’s share price from R42.50 at the date of inception to R111.86.
The cash distributions to beneficiaries comprise dividends of R1.33billion and R0.53-billion of proceeds from the 2008 Industrial and Commercial Bank of China sale.
The lock-up provisions of the structure end next year in December.