The financial position of MTN Zakhele continued to improve in 2012, resulting from a significant reduction in its debt and the sound operational performance of the MTN Group (MTN).
Addressing shareholders at the Annual General Meeting (AGM) in Sandton today, MTN Zakhele chairman Thulani Gcabashe said: “I am pleased to report the continued success of MTN Zakhele. The meaningful increase in dividends received from MTN has allowed the scheme to settle its debt obligations sooner than anticipated. This, together with the strong performance of MTN’s share price since the establishment of MTN Zakhele, will greatly benefit shareholders as we come close to the three-year anniversary of the scheme.”
Owing to the anniversary of the scheme, trading of MTN Zakhele ordinary shares between existing shareholders and eligible members of the black public is due to start at the end of November 2013.
To this end, Gcabashe added that the finalisation of the trading platform and governing rules are progressing well. “We are also undertaking a number of initiatives to facilitate a smooth and understandable trading environment in which all holders of MTN Zakhele ordinary shares may participate.”
The success of MTN Zakhele is dependent on the success of the MTN share price, as well as the ongoing receipt of dividends to service its funding commitments.
The MTN share price has performed strongly since MTN Zakhele first purchased MTN shares in November 2010. When MTN Zakhele acquired the shares, the cost was based on a price of R107.46 per share and a total value of R4 974 590 649. By 31 December 2012, the MTN share price had increased to R177.60, bringing the total value of MTN shares held by MTN Zakhele to R8 327 523 874. At the end of December 2011, the MTN share price was R143.73, with the total value of MTN Zakhele’s holding at R6 520 769 374.
Dividends received from MTN have increased meaningfully over the years, because of stronger earnings and a steady increase in its pay-out ratio: 40% in September 2010, 55% in April 2011, 65% in September 2011, 70% in April 2012 and 72% in September 2012.
“The MTN dividends received during April 2012 and September 2012 exceeded the obligations under the preference share funding arrangements. This enabled the company to fully settle the Class B preference share balance in April 2012.”
MTN Zakhele also started partially settling the Notional Vendor Financing (NVF) funding in September 2012, with the residual cash from the dividends received on its MTN shares. Practically, this was achieved by MTN Zakhele using that cash to acquire shares in the open market and delivering those shares back to MTN, thus reducing the NVF by the equivalent value of shares acquired.
“Interest rate risk was partially hedged, as the Class A preference shares were subject to a fixed interest rate until 30 April 2013. Subsequent to 30 April 2013, the Class A preference shares will be subject to a floating interest rate. These are significant achievements and the implementation of the proposed refinancing is expected to improve the total returns to shareholders, as fewer funds will be required to service the more expensive NVF funding obligations,” said Gcabashe.
In terms of restructuring of MTN Zakhele's debt, MTN Zakhele is seeking to obtain less expensive third-party funding. MTN Zakhele will obtain third-party funding and then use the funds to purchase shares in MTN, which shares will be used to reduce a portion of the notional vendor finance (NVF) balance owing by MTN Zakhele to MTN. The third-party debt will be raised by issuing further Class A cumulative redeemable preference shares.
In order to enable the refinancing, resolutions passed at today’s AGM included amendments to the share capital of MTN Zakhele (including a conversion of the existing initial Class A BIC preference shares into no par value shares) and further amendments to the company’s memorandum of incorporation (MOI).
MTN Zakhele shareholders initially contributed about 20% of the total funding needed for the BBBEE transaction. MTN made a significant donation, which provides a buffer against movements in the MTN share price from an asset cover perspective. This, together with the NVF funding from MTN, also means the BBBEE transaction will remain geared at a reasonably conservative level, even after implementing the proposed refinancing.
MTN Zakhele is to date South Africa’s largest empowerment scheme in the telecommunications industry. The R8.2 billion MTN Zakhele transaction was concluded in 2010 as part of MTN’s ongoing efforts to further its BBBEE objectives in South Africa. An invitation was issued to the black public (individuals and groups) to participate in the growth of MTN through subscribing for MTN Zakhele shares at R20 a share, with a minimum subscription of 100 shares in order to qualify.