MTN Zakhele Futhi: The dead cat bounce that confirms a BEE tragedy

Key topics:

• MTNZF spikes on unwind news but masks years of value destruction

• High debt and weak MTN performance doomed the Zakhele Futhi scheme

• Retail investors face losses while traders exploit short-term volatility

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BizNews Reporter 

If you needed a reminder that the stock market is a voting machine in the short term but a weighing machine in the long, look no further than the frenetic activity on the JSE this past week.

Top of the leaderboard? A name that should, by rights, be evoking mourning rather than celebration: MTN Zakhele Futhi (MTNZF).

The stock surged over 50% last week. On the surface, it looks like a bonanza. For the day traders and the speculators picking over the carcass, it was a profitable few days. But for the thousands of ordinary South Africans—the "man in the street" who bought into the promise of broad-based wealth creation back in 2016—this "rally" is nothing more than a final, cruel dead cat bounce.

The catalyst was the formal announcement of the scheme’s unwind. The board has thrown in the towel, proposing a scheme of arrangement to repurchase shares and delist. The offer price? A sobering 15 cents per share.

To put that number into perspective, you have to go back to the optimism of the launch. The Zakhele Futhi scheme was pitched as the successor to the highly successful original Zakhele scheme (which delivered handsome returns). It was meant to be a vehicle for black wealth accumulation, riding the coattails of Africa’s mobile giant.

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The "Futhi" structure was laden with debt—specifically, expensive funding that required the MTN share price to perform exceptionally well to keep the scheme above water. It didn't. MTN’s struggles in Nigeria, the currency devaluations, and the broader emerging market malaise meant that for years, the underlying value of Zakhele Futhi was being eaten alive by interest payments.

We’ve seen this movie before. It’s the same script that played out with the implosion of the Sasol Inzalo scheme. High leverage works beautifully on the way up, magnifying gains. On the way down, it is a weapon of mass wealth destruction.

So, why the sudden 56% spike in the share price last week?

It’s a classic arbitrage play. Before the announcement, the market had priced MTNZF for near-total insolvency—fearing a zero. When the board announced a guaranteed exit at 15 cents (plus a potential "agterskot" or top-up payment depending on final accounting), the stock re-rated from the floor. It moved from roughly 10c to roughly 16-25c. In percentage terms, that’s a massive gain. In real terms, it’s pennies on the Rand.

There is, of course, the matter of the "Special Dividend" declared earlier in November, which softened the blow slightly for those who held on. But let’s not mince words: for the vast majority of retail shareholders who locked up their capital for nearly a decade, the return has been negative.

The board’s circular speaks of "preserving value" and "minimising the risk of diminishing returns." Corporate-speak is a wonderful thing. In plain English, they are saying: "We need to stop the bleeding before there is absolutely nothing left."

For the BizNews community, the lesson here is stark. Complex financial engineering, no matter how well-intentioned or politically sanctioned, carries risks that are often opaque to the retail investor. When you buy a BEE share, you aren't just buying the underlying company (MTN); you are buying a leveraged derivative of that company. You are betting that the share price growth will outpace the interest on the loan used to buy it.

In this case, the bet failed.

As we close the book on Zakhele Futhi, the traders will pocket their 50% weekly gain and move on to the next volatility play. But for the true believers in the "shareholder democracy," the payout is a harsh tuition fee in the mechanics of debt.

The market has weighed Zakhele Futhi, and despite the green arrows on your screen this week, it has been found wanting.