MERGERS, ACQUISITIONS AND FINANCIAL RESULTS

MTN’s South Africa Empowerment deal a hit with investors

The black economic empowerment deal MTN created in 2002 has turned out to be the most successful so far in wealth generated for participants.

About 3200 MTN staff and former staff own shares in the company through Newshelf, a black empowerment investment vehicle set up by the managers. Newshelf borrowed R4.3bn from a variety of sources to buy into MTN at an average of R13.90 a share as it had no cash to fund the investment.

Those 243.5-million shares are worth about R24.4bn, but loan-related debt and tax rose to R21.8bn, leaving a profit of R2.6bn. Debt has been calculated to February 27 next year, when several more weeks of interest will have accrued.

At today's values, debt was smaller and the investment had realised a profit of R3.4bn, said an adviser close to the scheme, making this SA's most successful empowerment deal to date. Paying off debt and interest was always challenge in structuring empowerment deals when partners had little or no equity to put in, the adviser said.

The Newshelf deal was structured better than some earlier empowerment deals, but was still reliant on the share price rising faster than debt. The effect of the loan interest payments is clear from the wealth created for the three greatest beneficiaries, MTN CEO Phuthuma Nhleko, chief operating officer Sifiso Dabengwa and finance director Rob Nisbet. Nhleko owns 7.927% of the trust, giving him an indirect stake of 19.2-million MTN shares.

At last week’s price of R100 they were worth R1.93bn on paper, but Nhleko's indirect portion of debt whittles that down to R270m. Likewise, Nisbet and Dabengwa each hold a participation ratio of 5.5869%, or 13,6-million shares each, worth R1.36bn if they were unencumbered. Once their debt and other costs are cleared, they get MTN shares worth about R190m.

While the executives had an indirect interest in share assets worth billions, their economic entitlement after deducting liabilities to funders was significantly smaller, the adviser said. The Newshelf deal reaches its full term on Monday, and MTN is structuring a new multibillion-rand empowerment scheme to attract fresh black investors and give Newshelf members the option to continue being shareholders. MTN chairman Cyril Ramaphosa said MTN's proposal to create sustainable and meaningful black participation was important for its long-term progress.

Business Day Johannesburg

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