Analsysts yesterday welcomed MTN’s decision to postpone its new black economic empowerment (BEE) transaction, saying that it made sense because it would have been expensive to raise debt under the current tough economic environment.
Last year, MTN said it would sell about 6 percent in the listed entity to the South African public by the first quarter of this year, to replace the Newshelf 664 black empowerment group, whose six-year term expired in December.
Newshelf holds 13.1 percent in MTN on behalf of key directors and black staff. Yesterday MTN cited constraints in the financial markets for the delay.
Rajay Ambekar, a portfolio manager at Cadiz African Harvest, said that given the current liquidity and credit crisis, it made sense to delay the deal because "you don’t want to lock yourself into a funding deal that is punitive, especially if there is no desperate need, as is the case for MTN".
He added that by delaying the transaction, MTN could probably get better funding.
MTN said in December that it would raise finance, estimated to be less than 0.75 percent of its market capitalisation, while the Public Investment Corporation (PIC) was expected to provide mezzanine funding of up to 1 percent of MTN’s market cap.
Jan Meintjies, an analyst at Gryphon Asset Management, said a number of corporate deals had been put on hold because of market conditions.
"It’s difficult to finance transactions at this point and relatively expensive. Otherwise if companies go ahead under the current market conditions, it would dilute the whole objective," said Meintjies.
Lindsey McDonalds, a telecoms analyst at Frost & Sullivan, said it made sense to adopt a wait-and-see approach.
The 6 percent shareholding to the public will translate into a 25 percent stake in MTN South Africa, in line with BEE targets. The new black investors would be required to put in an equity investment and would be locked in for six years.
MTN, together with the PIC, which provided initial funding to Newshelf, would finalise the unwinding of the empowerment vehicle, whose 13.1 percent stake is valued at R24.4 billion.
Newshelf’s 3 200 beneficiaries were expected to share about R3.1 billion as the bulk of the proceeds will be used to settle debt.
Yesterday MTN shares eased 0.6 percent to R90.99. The Top40 index lost 0.4 percent.