Empowerment beneficiaries still awaiting payback
MTN Zakhele is widely hailed as one of the most successful empowerment schemes in the telecoms industry.
But investors have still not reaped the benefits of their shareholding. And after the scheme’s annual meeting last week, they may have to hold on a little bit longer.
Shareholders in MTN’s empowerment partner, which owns 4% of the cellular company’s shares, packed a conference room in Sandton for the meeting. Some had wailing babies, perhaps a sign that they were determined not to allow investment decisions be made without their say-so.
When the empowerment scheme was launched three years ago, it was the largest yet in the telecoms sector with a price tag of R8.2-billion. It dwarfed rival Vodacom’s R7.5billion Yebo Yethu deal, which gave the ordinary public and Vodacom employees 3.4% of the company’s local operations.
But while Vodacom’s Yebo Yethu shareholders have been paid dividends, MTN Zakhele’s investors haven’t seen a cent.
Perhaps in expectation of a sign that they would soon begin to see some payback, the Zakhele investors hit the scheme’s directors with a series of questions at the meeting.
Most were about a series of special resolutions, three of which were aimed at refinancing the scheme. Vigorous questions were asked of the board before shareholders approved the first special resolution on the conversion of shares in Zakhele.
The resolutions would have confused anyone, let alone unsophisticated investors.
After several minutes of questions, chairman Thulani Gcabashe roped in the scheme’s financial adviser to explain why the scheme needed to convert its existing 1.4-million class A shares with a par value of a hundredth of a cent to shares with no par value.
These would have the same value as an additional 1.7-million shares created by a second special resolution, which Zakhele wanted to issue to the existing class A shareholders at a cost of R1 000/share, thus raising further capital of R1.7billion.
Kgolo Qwelane, the scheme’s financial adviser from RMB’s corporate finance department, said during the presentation that this capital was needed to help pay off more expensive notional vendor funding — money
MTN Zakhele investors hit the directors with a series of questions
that is lent by the company to prospective shareholders to help them buy discounted shares in the company — provided by MTN.
Zakhele was funded through a complicated structure, which included R1.6-billion brought in by around 121 000 ordinary people, almost R1.3-billion in MTN donations, vendor funding of R3.2-billion from MTN, and investment banks which paid in R2.2-billion in return for class A and class B preference shares.
Debt on class B shares, which stood at R720-million in 2010, had already been paid off by April last year, leaving Zakhele with a R1.5-billion debt on the class A shares.
The class A debt is set to increase after shareholders approved more shares in the same class last Monday.
Though Zakhele was given dividends of R632-million last year, thanks to its 4% of MTN, these have been swallowed by running costs and the need to repay its funders.
Since 2010, for example, it has repaid R191-million to preference share holders Rand Merchant Bank, Absa Capital and Nedbank.
In contrast, Yebo Yethu shareholders have enjoyed dividends from the start of the scheme.
Dividends paid directly to shareholders — which were declared after the company deducted running costs — reached close to R20.2-million this year, compared with just R6.5-million in Yebo Yethu’s first financial year.
The Vodacom empowerment scheme does bear notional funding like Zakhele, but this is serviced by deducting a portion of dividends declared by Vodacom before the balance is paid over to Yebo Yethu.