MTN Zakhele trading at last: offers 60% discount into cell company’s shares – if you’re Black

Grant Gelink MTN Zakhele

The process of getting MTN’s Zakhele BEE shares trading has been rocky, to put it mildly. Several years ago, 121,000 people purchased Zakhele shares, mostly in relatively small batches. They had to hold on to those shares for three years, but were promised that they could begin to engage in limited trading at the end of that period – the shares would be sold over-the-counter to buyers who had registered and demonstrated that they were eligible to hold the shares (that is, black South Africans born prior to 1994). Unfortunately, as it turned it, this was easier to promise than it was to deliver. The share trading platform that MTN decided to use experienced a lot of growing pains, and trading was suspended when high volumes overloaded the system. what’s more, according to MTN Zakhele director Grant Gelink, the task of verifying people’s race proved to be more challenging than anticipated. Zakhele kept promising shareholders that trading would soon move, then shifting the deadline and provoking a great deal of frustration. However, as you know, this story has a happy ending – Zakhele shares have resumed trading, and by all accounts things are going gangbusters. – FD 

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ALEC HOGG:   MTN Zakhele has announced that its trading in ordinary shares in almost 14 billion rand broad based black economic empowerment scheme, has resumed today.  For an update, we have the Director of MTN Zakhele Grant Gelink, with us in the studio.  Grant is also the former Managing Director of De Loitte, a man we’ve had much to do with over the years.  How did you get pulled into MTN Zakhele?

GRANT GELINK:  Maybe through the previous CEO, Martin Shaw; he is also on the MTN Zakhele board.  I worked a bit with Thulani on one or two matters, so he said to me ‘it’s a very small job.  Why don’t you just come and help us?’

ALEC HOGG:   Wow, I think he undersold it somewhat.  You’ve really had a rough patch over the past couple of months and people like us have said ‘why?  Why do you go for an unknown entity to give your shareholders an opportunity to trade, when it is such an important listing?’

GRANT GELINK:  Well Alec, firstly on the selection of the software: we went through a proper process and by all accounts, Link and Velocity had all the credentials to be able to do it.  As we got into the process a lot more, and starting to understand that verifying empowerment shareholders for example, is a very big job.  People had last registered three years ago.  Now they suddenly have to register again, but their bank accounts may have changed.  Many of them didn’t, but many of them did.  I think the biggest thing…we developed a system – and we’re trying to develop a system for the next three years, basically – because in November 2016 the system should shut itself down – theoretically in any event – and anybody can trade in Zakhele or Zakhele will just convert them to…

ALEC HOGG:   So you can maybe take it to JSE.

GRANT GELINK:  Take it to the JSE.  We wanted that system.  What we didn’t realise the interest that would come about in those first two weeks.  It was phenomenal and it’s a bubble.

ALEC HOGG:   But you should have known that.  These shares are widely held.  They’ve gone up four times.  What’s the trading like this morning?

GRANT GELINK:  Well the trading in fact, in the first hour, was more than it was in the whole of the first day when we crashed, so everything is going all right.  Things look stable, we’re working well, and as at about 11:00 there was 24 million rand in trades.  That’s about 234,000 shares traded.

ALEC HOGG:  So it’s stable, the system is working, people are able to cash in their shares or presumably, buy as well.  What is the discount at the current share price to buying MTN Direct?

GRANT GELINK:  Well MTN has been vacillating somewhere around 200/212, so you have a three-year window before you can trade openly.  There is no guarantee that one Zakhele share is going to be equal to one MTN share.  That depends on how much of the debt we’re paying down, which we’re paying down at a rapid rate, so one would expect that it should trade at about a 30 percent discount plus the discounted value over three years which, by and large, should be negated by the growth in MTN shares over three years.  The discount is somewhere between 50 and 60 percent in the share price.

ALEC HOGG:   You’re an accountant.  You know this business very well.  Why aren’t black people rushing out and just jumping in if it’s a 50 to 60…?

GRANT GELINK:  They are.

ALEC HOGG:   Why are people even selling if it’s at such a huge discount?

GRANT GELINK:  Well, I think…remember, a large part of the population is in the lower income grouping – 121,000.  Of the 121,000, most people only have between 100 and 1000 shares, so if you paid R2000.00 for example, for 100 shares, you’re now able to get R8000.00 or nearly R10, 000.00 for that, and people take it.  What we’ve always tried to do is guard against – and we gave some advice prior to going out to the market, announcing in November that we were going to start trading – some valuations on what people should be expecting on it.  Bear in mind that the Nett Asset Value of an MTN Zakhele share is about R112.00 per share.

ALEC HOGG:   Where is it trading?

GRANT GELINK:  It’s trading about 85/90, but then you’d expect that discount between 112 and about 85 because you have to hold in order for it be freely traded.

ALEC HOGG:   And you can only sell to black people as well, so it takes part of the market out.

GRANT GELINK:  It takes part of the market out, but there are many groups in the market buying up the smaller shares, and that would be natural.

ALEC HOGG:   Naturally, it’s a fantastic idea.  Where else can you get these kinds of 30/40 percent discounts?

GRANT GELINK:  Sadly, we follow the MTN closed period, so we can’t trade.

ALEC HOGG:   That’s interesting, so the Gelink family fortune is not being invested into MTN Zakhele – yet.

GRANT GELINK:  It’s not.

ALEC HOGG:   When does the closed period end?

GRANT GELINK:  Sometime, when MTN releases their results, which is in March if I remember correctly.

ALEC HOGG:   As far as MTN’s performance is concerned clearly, if you own a Zakhele share, you’re watching that.  As a Director, are you comfortable?

GRANT GELINK:  I’m very comfortable.  In fact, the other side of that coin Alec is what the dividend is in MTN and clearly, as the cash flows run, the share runs.  The dividend pay-out is important for us, because we use that to pay down the debt.  If you look at it now, MTN Zakhele, probably on a market value on the four percent, is probably worth about 18 billion and we now have that debt down to about seven.  We’re hoping in the next three years to ride the 7 billion almost down to nothing, so that you can have a very clean balance sheet.

ALEC HOGG:   It has been a fantastic initiative, soured a little by the suspension in trading – coming off the market and going on – but hopefully from here everything is going to go smoothly.

GRANT GELINK:  We’re very confident.

ALEC HOGG:   Yes.  Well done, Grant.

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