YeboYethu trading has a smooth first day, but share price remains subdued
Shares in YeboYethu, Vodacom's BEE vehicle, began trading on Monday. Happily, the trading went smoothly and the over-the-counter system handled some 355 trades, worth about R1.4m, with no trouble. This is good news, because MTN's Zakhele BEE vehicle faced a number of challenges getting its over-the-counter share trading system up and running – trading actually had to be suspended due to system malfunction. However, while the trading may have gone smoothly, the price left a little to be desired. Shares ended the day at about R40. This represents a decent 15% return on the R25 issue price, but is some way away from the underlying value of the share, which financial analyst Riaz Gardee puts about R70 a share. Hopefully the extensive shareholder information programme that YeboYethu chairman Zarina Bassa describes in this interview will help existing shareholders may an informed decision about whether to sell or to hold. – FD
ALEC HOGG: Here's a good news story, though. It has been five years since the launch of Vodacom's 7.5 billion rand BEE scheme YeboYethu. Today, limited trading in the shares has begun. Joining us to discuss the opening of the trade today is the Chairman of YeboYethu Zarina Bassa. Zarina, I guess you must be feeling quite relieved that everything has gone according to plan, particularly as MTN Zakhele had a rather different start.
ZARINA BASSA: Yes hi Alec. Thank you. We've spent a lot time stress testing the platform and we've been quietly confident that things would go according to plan. So far, they have. It's been five years of hard work and I'm conscious that we're really just halfway through the transaction period. It's a start, but it's another five years ahead.
ALEC HOGG: The shares started very strongly this morning. It got to as high as R56.00. They're trading down at R40.00 at the moment, a big discount for those who want to buy into Vodacom… Are you a little disappointed at the price they're trading at?
ZARINA BASSA: Alec, I think it's early days yet. In our case, we've taken into account what has happened with other similar shares, and the point that I would like to stress to existing shareholders is really… We're at a point where you can start trading, and trading means that you can only trade with other black individuals or black groups. That in itself impacts the liquidity. Clearly, if you hold on for the balance of the five years where there are no restrictions on trading, the picture will be very different.
GUGULETHU MFUPHI: Zarina its Gugu here, perhaps you can enlighten us as to how stringent your investor education seminars have been in the past.
ZARINA BASSA: We spent a lot of time working with our shareholders, not just since October where we've had an intensive campaign that we started, but effectively, from the beginning of this transaction period. At every AGM we have an orientation session where we're talking to our shareholders around what the deal is about, explaining the basics around trading and really just raising the level of financial awareness, particularly around understanding the financials, which, I think in this day and age, many of us struggle to understand. It's part of us. This has really just been our ethos, to work closely with shareholders. We started a campaign – an intensive one – in October. We've had training booklets. We've had training videos on the website and I would urge shareholders who are still not too au fait with what is required, to go onto the website, or pick up one of the training booklets of which are in five languages and I think, are very easy to understand.
ALEC HOGG: Well 355 different deals, 1.4 million rand worth of trade…by this time, MTN Zakhele had ground to a halt, so you've had a good start. How many shareholders overall are there Zarina, in YeboYethu?
ZARINA BASSA: We have just over 100,000 shareholders.
ALEC HOGG: How many of them…will you have a look? Well, 355 of them have traded so far. How many have registered to date?
ZARINA BASSA: We have…I would say it's above ten percent. We started the registration late last year and if there are going to be any delays going forward, it will be around shareholders who have not yet registered, where any of their details have changed, and they then have to be re-FICA'd etcetera. The actual trading process, once the verification has been done, is fairly simple, but so far so good and we're still quietly confident.
ALEC HOGG: Zarina Bassa is the Chairman of YeboYethu. In the studio is chartered accountant and financial analyst Riaz Gardee. Riaz, at R40.00 per share it looks like an absolute steal for black shareholders.
RIAZ GARDEE: I think in terms of the valuation it probably comes around to R70.00 per share and, as a significant discount playing in mainly because of the trading restrictions as well. I think many of the shareholders haven't registered, so that plays a part in the liquidity. Zarina touched on it earlier, but I think it's a very complex set of financial statements, which they have on their website, and it's very difficult for the average man in the street to understand what it's about. If you've looked at the financial statements, it covers 'notion of vendor finance', A-shares, B-shares, and N-shares, so I think the investor education is quite important and it's very difficult for them to do it for everybody they're all at different levels. To do it at the same time is quite difficult. I think a combination of the lack of investor education and then the liquidity, has driven the price down to where it currently is.
GUGULETHU MFUPHI: I was actually telling Alec that I suspect many black investors might be selling them off because it's just after the festive season period. January has just come about with their salaries, but people have debt to pay and school fees. It seems as though the mindset within black investors themselves needs to change, that this is not just a 'stokvel' kind of saving mechanism, but also a long-term investment.
RIAZ GARDEE: I think that's an important point you raise, and I don't think many of the banks or analysts are covering this sector – I think Alec was a pioneer in covering this sector – and because there's no money in it for them really. The brokerage…the brokers are off their books. The customers are not their customers. It's an unbanked customer, in essence – an un-invested customer. There's no one looking after them, then they would default to the approach they had in the past, and I think more education is required on their part as well. I think another thing is that complexity is not distilled sufficiently, so they're looking at the price and seeing how much money they need. They're not comparing the price to the value of the investment, and I think that's the critical thing, which needs to be done. Typically, all the BEE transactions are done in the same way. There's equity and there's debt. It's put into a special purpose vehicle, that buys an underlying investment, and then there are restrictions. Any BEE shareholder needs to think about 'what the underlying asset is, what the restrictions are, and what the debt is?' With those three, he can come to the value of the investment and he can compare that to the price, and then decide whether he wants to buy or sell. I think for them to see how much money they need is probably not the right decision. Obviously, if you don't have money and you don't have five or three years to wait, what do you do?
ALEC HOGG: You would have bought in, in 2008 at R25.00.
RIAZ GARDEE: That's right.
ALEC HOGG: You're getting R40.00 today. That's not a great return, but I'd think you'd be quite happy if you've made money.
RIAZ GARDEE: That; would amount to 15 percent for five years, so I don't think it's bad, but I do think definitely, if you can hold on for another five years that value would unlock.
ALEC HOGG: It's almost teaching people that when something's at a discount and you own it, don't sell. Don't make it a seller's market.
RIAZ GARDEE: Yes, most of it is all common sense. If you put it in that perspective…if you have an asset, which is worth R70.00 in five years' time, how much would you sell it for now? Surely, you wouldn't sell it for R40.00, so it's the same principle that applies.
GUGULETHU MFUPHI: You mentioned the mechanisms of BEE shares as well as the debt that's associated with it. Walk us through YeboYethu's case.
RIAZ GARDEE: Okay, so for example in YeboYethu's case, they've put notional funding in there. Different companies put different structures. Some put preference shares, some put loans, and so YeboYethu has put notional funding which is an option. In essence, after the period they will exercise an option to recover the balance of the debt, which is outstanding. It's a complex issue and it's mainly done to remove the liability off their balance sheets. If you look at the balance sheet of YeboYethu today, the Nett asset value is about R37.00, but if you look at the underlying transaction, the asset value is probably R70.00. The reason for that is mainly because of that option that removes the liability off the balance sheet, so it's quite complex and you can imagine the average investor in the street who is trying to unpack these issues from the website.
ALEC HOGG: So the best deal…if you're black, buy these shares. Put them away for five years. Then there are going to be no more restrictions on who you can buy from, no more debt, and you'll get at least R70.00.
RIAZ GARDEE: Exactly, and I think that should encourage stokvels and other groups to come together, look at these avenues, come into the formal economy, put your money together, and hold on for a couple of years.
ALEC HOGG: Riaz before you go, you're a chartered accountant. Are you expecting anything interesting from the budget this year?
RIAZ GARDEE: Well, I think it will be an interesting one. We have a tight fiscal policy coming ahead, so we're hoping for some breaks but I think it will be very difficult for the government to balance the ins and outs.
ALEC HOGG: So he's chequebook is also a little bit stretched, like ours.
RIAZ GARDEE: Yes, so he may be selling as well.