SA Government sells 14% stake in Vodacom to PIC, cash goes into Eskom

Another of the SA Government’s links to the private sector has been severed with this morning’s announcement (published in fell below) that it has sold its 14% of the country’s leading domestic cell phone company Vodacom to the State Employees’ retirement fund. This will push the PIC’s share in the company to just over 17%. No price has been disclosed but at current market prices, the stake is worth R28.8bn. Of this, R23bn will be used to inject promised funding into electricity utility Eskom. The State inherited its stake in Vodacom as part of the cell phone operator’s spinoff from previously wholly owned State Telecoms entity Telkom. Much as the incumbent ANC Government desires retaining control of this key economic lever, there remains a sense of inevitability about Eskom’s eventual privatisation – or slide to irrelevance as new technology takes hold in the years ahead. But at least for now, it has the money to keep the nation’s lights on. Most of the time anyway. – Alec Hogg

Zapiro's perspective of the top team at the State-owned utility Eskom. More of his work at zapiro.com
Zapiro’s perspective of the top team at the State-owned utility Eskom. More of his work at zapiro.com

From the SA Treasury

Government has sold its 13.91 per cent stake in Vodacom to the Public Investment Corporation (PIC), acting on behalf of the Government Employees Pension Fund (GEPF). As previously indicated, the proceeds from the sale will be used to finance the R23 billion allocation to Eskom.

This gives expression to the commitment made in the 2015 Budget and the 2014 Medium Term Budget Policy Statement that funding of state owned companies would be in a deficit neutral manner.

Last week, Parliament passed the Eskom Special Appropriation Bill to enable the appropriation and the Eskom Subordinated Loan Special Appropriation Amendment Bill for the conversion of the subordinated loan into equity.

The National Treasury and the Department of Telecommunications and Postal Services worked together in executing the transaction. In arriving at a decision to dispose of its stake in Vodacom to the PIC, government undertook a market sounding exercise where numerous organisations presented proposals for raising the funding to be allocated to Eskom.

Government considered a wide range of options including the sale of listed shareholdings it holds directly, the disposal of listed stakes held indirectly through Development Finance Institutions (DFIs), the sale of government’s unlisted shareholdings in state owned companies (SOCs) or their subsidiaries, the ring-fencing and sale of assets held by SOCs and the sale of other assets, such as property, owned by the state.

The sale of the Vodacom stake was the most viable option for ensuring that government was able to swiftly realise the proceeds and inject equity into Eskom to bolster the utility while simultaneously ensuring government was still able to deliver on its strategic objectives.

The PIC’s offer to Government was in line with pricing quoted by other institutions when taking into account the large size of the stake and also provided the added benefit of keeping the shares within the broader family of public sector-related institutions.

In addition to the allocation of R23 billion to Eskom, government committed to converting to equity the R60 billion subordinated loan that had previously been provided to Eskom. These measures will further strengthen the company’s balance sheet and will be complemented by cost reductions by Eskom and the utility applying for tariff adjustments through the normal regulatory processes.

NERSA have declined Eskom’s most recent application and have indicated the regulatory processes that should be followed by Eskom in applying for any future adjustments.

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