Cheap MTN share offer could be a costly call

The National Empowerment Fund (NEF) is selling 11.7 million MTN shares to disadvantaged black people at a discount of 20% to the current price of around R100.

July 29, 2007
Cheap MTN share offer could be a costly call

The scheme is called Asonge, Zulu for “let’s save it”, but commentators have suggested that, with MTN trading at an all- time high and facing an extremely fraught situation in Iran, it may well be a matter of “let’s lose it” for the intended beneficiaries.

If they are as poor as the NEF thinks, then even a small knock to the share price could be devastating.

The NEF received 23.7 million MTN shares from the government in 2000 when they were at R28.50.

That was two years after the fund was established. Why did it wait so long, and hasn’t it missed the boat?

The NEF’s Sorbonne-educated CEO, Philisiwe Buthelezi, implies that when the fund received the shares, it was in a shambles. There were “no structures” in place and it did not have the capacity to organise such a share scheme.

The fund became operational only in 2002, four years after it was established to facilitate black economic empowerment.

If it was operational in 2002, why did it take five years to implement Asonge?

“When you are setting up an organisation of this nature, you can’t just do it overnight,” objects Buthelezi, who was appointed only in July 2005 after her predecessor, Sydney Maree, was ejected for alleged fraud.

She also points out that a new board was appointed only after she got the job.

“We were actually starting from scratch.”

So after being paid handsomely for several years and receiving who knows what perks, such as cars and entertainment allowances, the entire previous NEF board was fired?

“I don’t think I’m at liberty to comment on that.”

Did they go voluntarily?

“I don’t think so.”

How do we know we won’t be back at square one in another three years?

“The new board [eight members] has been constituted differently,” she says.

“The expertise they’re bringing to the organisation, and the experience, is new.”

She says the NEF now has people with a legal and financial background in charge.

It has taken the new board, with the assistance of the usual coterie of private consultants and advisers who have been paid R15-million so far, to produce Asonge.

Why couldn’t the NEF simply use the Telkom share scheme model which sold millions of shares to black people at a discount, and when the price was low enough to make them a healthy profit?

Asonge, says Buthelezi, is “more targeted”.

With the Telkom share scheme, all blacks — regardless of how wealthy they already were — were invited to participate.

The NEF has taken care to ensure that Asonge will not benefit the usual suspects.

The shares will be spread evenly between all the provinces to give people in poor rural areas a look-in.

No person can buy more than R50 000 worth, no group of people more than R100 000.

But the minimum entry level is R2000, and how many poor people can afford that, I wonder?

They will participate through savings schemes like stokvels and burial societies, says Buthelezi.

She says “the key focus” for the NEF is to use Asonge to educate blacks about investing in the market rather than in burial societies and stokvels.

“We are using the MTN shares as a practical example of alternative ways of investing their money.”

Given that the equity market has been the undoing of many BEE ventures, is this responsible?

“We’re not saying they should take all their savings and investments from their traditional schemes and put it in the Asonge share scheme. We are saying they should take a portion of that money. That way you are able to expose them to other asset classes they’ve never been exposed to in the past.”

It will be a bitter lesson if MTN’s shares fall, won’t it?

“You can’t protect black investors forever.”

Buthelezi says the 20% discount will cushion investors from losses.

The NEF’s job is also to fund the purchase of equity in white-owned companies by BEE consortiums. By the end of 2006, it had approved 31 such transactions worth R297-million, and another 30 worth R406-million are being evaluated.

It also funds entrepreneurs wanting to start businesses. There was a serious backlog of applications, but they have been cleared, says Buthelezi.

“For a long time people didn’t even know that the NEF existed. Then all of a sudden they got this thing that, for black entrepreneurs who were looking at creating new enterprises or expanding their production facilities, they could access our funds. But they didn’t understand our investment processes and requirements so you were getting everything, basically.”

Business plans were of such “low quality” that banks “would not even look at them”.

The most important lesson the fund has learned is not just to dispense money and hope for the best, Buthelezi says.

The vast majority of unassisted start-ups ended in disaster, so now “there is a lot of hand-holding that is involved”.

Buthelezi, 43, was born in KwaZulu-Natal in “a small village called Ulundi”.

Is she related to …? “Not really.”

Both parents were school principals and she was educated at Marianhill Catholic boarding school in Durban.

She read for an economics degree at the University of the North before she was awarded a French government scholarship to study economics at the Sorbonne in Paris where she became fluent in French in six months.

After three years, and an almost- completed MSc in applied macroeconomics, she cut short her studies to enroll for an MBA in corporate finance and international financial management at the University of Sheffield in England.

Back in South Africa, she worked as an analyst with Caltex in Cape Town, then in the supervision department of the Reserve Bank responsible for the Standard Bank account, then at Standard Corporate and Merchant Bank. This was followed by the Department of Trade and Industry, where she was based in France and Germany to facilitate foreign direct investment in SA.

The NEF has reserves of R3-billion which seems hardly adequate if it is to make the kind of dent the government clearly hopes it will in the economic landscape .

Buthelezi points out that 40 small businesses are running, thanks to the NEF.

“You don’t only have to deal with big issues to play a meaningful role in society.”

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