MTN BEE deal: What R20 per share means

The MTN BEE deal has attracted huge interest among our readers, prompting us to clarify and correct any misconceptions.

MTN BEE deal:  What R20 per share means

MTN, the largest mobile operator on the African continent, will sell a 4% stake worth about R8.1bn to qualifying black South Africans, increasing black ownership of the telecoms firm to 29.1% of MTN’s South Africa operations.

Qualifying people in the form of Africans, Coloured, Chinese, Indian people and also black entities will be allowed to participate in the deal. The participants will subscribe for shares through a black investment company to be called MTN Zakhele empowerment scheme (build for yourself).

Black investors  will be allowed to subscribe at R20 for each MTN Zakhele share, but will be obliged to buy a minimum of 100 ordinary shares at R2 000, giving MTN Zakhele investors exposure to MTN. There will be no limit put on the number of shares that can be bought. However, to ensure a broad participation, shares will be allocated to applicants with the least number of Zakhele shares, with individuals prioritised.

MTN said the offer is expected to open to qualifying investors on August 30 2010. A prospectus with more details will be available when the offer opens, at Post Offices and MTN retail stores. The transaction is expected to run for a period of six years. However, investors will be locked in and will be allowed to trade with other BEE investors after three years.  When the transaction has lapsed participants will be allowed to trade with no restrictions.

As part of the deal, the African telecoms giant, MTN, will issue about 41 958m new shares to Zakhele at R107.46, while the Public Investment Corporation will also sell about  35 155m of its MTN shares to Zakhele. This then values the deal at about R8.1bn. This will allow Zakhele to hold about 75m shares in MTN, an equivalent of a 4% stake. Zakhele will sell its shares at R20 each, raising about R1.6bn.

Zakhele will likely be left with debt of more than R5bn, taking away the thought of a free lunch for the Zakhele investors.

This means Zakhele will offset the dividends received through its stake in MTN, and some shares could be sold to reduce debt. Owners of Zakhele shares may have to forget about a dividend until all outstanding debt and other obligations are paid up.  The Zakhele investors will also have to cross their fingers against a drastic decline in MTN’s share price.

The bottom line is that if the house is built and there’s no storm, meaning everything due is settled, mainly from dividends received from MTN, and there is no drastic decline in MTN’s share price, for one Zakhele share investors are likely to get about three quarters of an MTN share or close to R100.

MTN BEE deal << comments and views

First published on Moneyweb – SA’s top financial website

 

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