Six-bagger MTN Zakhele poised for a vibrant debut when it begins trading when listing via OTC on Monday

There’s a quiet boom happening in BEE shares issued by a number of South Africa’s major public companies. On Monday, 120 000 shareholders in the MTN Zakhele scheme will be able to begin trading their shares. In this interview the scheme’s chairman, former Eskom CEO Thulani Gcabashe explains how these investors have already landed a six bagger in just three years – and why he expects trade to be vibrant when the market opens next week.- AH    

To view this CNBC Power Lunch video click here

GUGULETHU MFUPHI:  Ordinary shares in the R13.8 billion broad based black economic empowerment scheme operated by MTN Zakhele became tradable this month, offering qualifying black investors the opportunity to buy shares from existing shareholders.  Thulani Gcabashe, Chairman of MTN Zakhele joins us now.  Thulani, looking at the value that you’ve managed to create for the investors who got into the game back in 2010 – the value has increased by at least 68 percent – good job that you guys have done so far.

THULANI GCABASHE:  Well, that’s very good.  I would like to take all the credit, but we really rely on the MTN dividend, so we’re not an operating company.  We’re just a special vehicle for the BEE scheme that MTN put together, but it has been phenomenal.

GUGULETHU MFUPHI:  Regarding the scheme: I understand that a couple of years ago you had some debts to settle.  Has that been taken care of now?

THULANI GCABASHE:  No, there is still some debt remaining.

GUGULETHU MFUPHI:  How much?

THULANI GCABASHE:  I couldn’t give you the exact figure right now, but the main point is that it’s a six-year scheme.  We’re just three years down the road, and after three years, it was intended that the shares would be tradable – restricted of course, to black individuals.  In 2016, the shares will be tradable to anybody and at that stage, we would first have to settle any remaining debt – if there is any, of course.

ALEC HOGG:  That means I can join in the conversation because Gugu said that as I’m not allowed to have these shares, I can’t talk (laughs).

THULANI GCABASHE:  Well, after 2016 you can talk.

ALEC HOGG:  I’m taking a long-term view.  Why would people, at the moment, be investing in MTN Zakhele rather than going through MTN itself?

THULANI GCABASHE:  If they look at the value that’s been created over the years and the possibility that once all debt is settled, it could be seen as the same value as MTN shares; the kind of prices that we’re looking at currently would make it something of value

ALEC HOGG:  Just explain that to us, because you’re not listing on the stock market.  You’re listing over the counter.

THULANI GCABASHE:  Yes.

ALEC HOGG:  What’s the difference?

THULANI GCABASHE:  We really look at net asset value per share because the market will determine the price on the day we open.  However, we’ve had two analysts’ reports, which have sort of given a range of R120 to R143.  Based on our midyear results, the net asset value per share was already at R104. Anyone who came in, in 2010, would have paid R20.

GUGULETHU MFUPHI:  Regarding that Thulani, we know that liquidity is a huge problem when it comes to BEE shares, and doubtless, there are other influencing factors regarding that, such as investor education – not understanding how the market works.  How are you addressing such issues?

THULANI GCABASHE:  Well on the education bit, at our last AGM we followed it with a workshop just to start the process of educating our shareholders.  We then arranged roadshows, which served as workshops for information, and also an opportunity to register to be a trader.  We think that through those sessions, which have many Q & A opportunities: we think people have had the opportunity to raise their issues and get answers.  Your second question was…

GUGULETHU MFUPHI:  The liquidity – the lack of liquidity in the market.

THULANI GCABASHE:  We have quite a diverse shareholder base.  It comprises 120 000 shareholders and amongst those are some groups – stokvels and special purpose companies that have been set up – and we’ve seen the kind of interest in the run-up to the launch, which suggests to us that we can expect some volumes of trading.  We think the inherent value and the interest that’s been shown will probably not have a liquidity issue.

ALEC HOGG:  That’s fantastic: a six-bagger in three years – an incredible performance.  Before you go…Eskom. You used to run the place.  Do you think the guys are doing okay now?  We hear that we’re not going to have lights soon. 

THULANI GCABASHE:  You know it’s been six years since I left.  I think it would be very unfair to comment.