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By Felicity Duncan
Shareholders in Vodacom’s BEE vehicle YeboYethu will soon be allowed to start trading their shares, using an over-the-counter platform. They can only sell to approved buyers – Vodacom wants to ensure the YeboYethu stake remains in black hands – but this is nevertheless is an opportunity for people who purchased YeboYethu shares back in 2008 to cash in on their investment.
No one can predict what price YeboYethu shares will trade for. Since YeboYetho is a vehicle for a 3.44% stake in Vodacom SA, it should be worth roughly the same as that stake. However, the share price is likely to be lower than its intrinsic value because the sale of the shares is restricted, and carries a fair amount of debt that it needs to pay off before shareholders can enjoy the full benefit of their Vodacom SA stake. Despite this, the shares will almost certainly trade at a premium to their R25 issue price, given the strong performance of Vodacom SA over the last five years.
As we approach the February 3 trading start date, it’s interesting to think about how the Vodacom BEE deal compares to other attempts by South African companies to expand black ownership (click the headers for the full prospectus).
The 2008 YeboYethu transaction consists of three moving parts. First, there’s the YeboYethu special purpose vehicle (SPV) that holds 3.44% of Vodacom SA’s shares. Members of the “black public” purchased 55% of YeboYethu’s shares, equal to about 1.89% of Vodacom SA. Second, there’s the YeboYethu Employee Participation Trust, through which Vodacom staff owns an effective 1.55% of Vodacom SA via a 45% stake in the YeboYethu SPV. Finally, there are the “strategic partners,” the Royal Bafokeng and Thebe Investment Corp, which own 1.97 and 0.85% of Vodacom SA respectively.
The transaction was funded in various ways. Vodacom contributed R5.85m in vendor financing and offered a 10% discount on the shares, members of the black public who bought YeboYethu shares contributed around R360m, and the Royal Bafokeng and Thebe contributed a further R540m.
As with most BEE schemes, the idea was that the dividends that the SPV earned from Vodacom would be used to pay back the borrowed money. YeboYethu shareholders were not allowed to sell their shares for five years after they bought them, but from February 2 they will be able to trade their shares over-the-counter with approved black buyers.
In 2010, MTN launched its BEE ownership scheme Zakhele. Unlike many BEE transactions, Zakhele is relatively uncomplicated. Essentially, MTN sold 4% of its shares to an SPV called MTN Zakhele, which paid for the shares using a combination of debt, a donation from MTN, money from people who bought shares in Zakhele itself, and the sale of preference shares to banks.
Zakhele’s 121,000 shareholders were locked in for a period of three years, during which they couldn’t sell their shares. That period ended late last year, and over-the-counter trading in Zakhele shares began, although it was unfortunately subject to many technical delays and ultimately suspended; trading is set to resume this month. When the platform was last operational, Zakhele shares were trading for around R80, meaning that those shareholder who managed to sell (the shares are very illiquid) have made a tidy profit.
Sasol’s BEE transaction was very complex. It involved an employee trust, a special Inzalo Foundation that was set up to help uplift needy South Africans and endowed with Sasol shares, and a two-part offer to the black public – they could purchase heavily subsidised shares that could be traded over-the-counter after a lock-in period in Sasol Inzalo, which holds a stake in Sasol and works much like Zakhele or YeboYethu, or they could purchase special discounted BEE Sasol shares that trade on the JSE like regular Sasol shares.
A sharp fall in the Sasol share price put Inzalo shareholders underwater for a while, although things are now looking up. Indeed, the Sasol transaction (one of the earliest and most complex) is often referenced as an example of the danger posed by using vendor financing in BEE deals and relying on share price and dividend growth to fund them.
Another complex deal, SABMiller’s Zenzele transaction saw the company transferring 8.45% of its equity to black hands. It, too, has three components. First, there’s the SAB Foundation which, like the Sasol Inzalo Foundation, was endowed with SABMiller shares and aims to engage in social upliftment. Second, there’s the Zenzele Employee Trust through which SABMiller employees benefit. Finally, black tavern owners and liquor retailers nabbed a stake through the SAB Zenzele SPV.
Looking over all these transactions (summarised in the table below), you can see that they vary in scope and complexity. Vodacom’s YeboYethu is a relatively uncomplicated one, in which the bottom line benefit to shareholders is clear.
|Scheme||% of equity involved||Components of the deal||Price of tradeable shares at issue||Most recent price/ estimate||Minimum investment period||OTC trading available|
|Vodacom Yebo Yethu||3.44%||YeboYethu SPV owned in part by black public (1.89%), Vodacom employees Trust (1.55%), stragegic partnership with Royal Bafokeng (1.97%) and Thebe Investment Corp. (0.84%)||R 25.00||R 35.50||5 years||Starts on 3 February, 2014|
|MTN Zakhele||4.00%||Zakhele SPV owned by black public (4%)||R 20.00||R 80.00||3 years||Not presently, platform crashes led to supsension, due to restart this month|
|Sasol Inzalo||10.00%||Sasol Inzalo Employee Trust (4%), Sasol Inzalo Foundation (1.5%), Sasol Inzalo Groups (1.5%), members of the black public through Sasol Inzalo Public and through a discounted cash sale of special Sasol BEE shares (3%)||R18.30 /R36.60||R 70.00||3 years||Yes|
|SABMiller Zenzele||8.45%||SAB Zenzele Employee Trust (3.39%), the SAB Foundation (1.54%), and black retailers through SAB Zenzele (3.52%)||–||–||10 years||No, shares will be exhanged for SABMiller shares at the end of 10 years|
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