PIC scores big in Vodacom stake buy

Mergers, Acquisitions and Financial Results

THE Public Investment Corporation (PIC) secured itself a 10% discount when it came to the government’s rescue by buying its 13.9% stake in cellphone operator Vodacom Group.

The stake was valued at R30bn at Wednesday’s close. The purchase is sufficient to finance the government’s promised R23bn cash injection to Eskom. Vodacom shares rose 2.8% to close at R142.56.

"We agreed on a discount (which is) normal for these kinds of transactions, considering there would have been an accelerated book build process to sell the asset," said Daniel Matjila, CEO of the PIC.

The government approached the PIC, along with other potential investors, and a price was agreed upon, said Mr Matjila.

"This is a great investment decision. We were always buyers at the right price, and now there was an offer on the table. We could have walked away if the price was not right," he said.

The Treasury approached about 20 financial institutions, mainly banks, to assist it with identifying which nonstrategic state-owned assets should be sold to raise the R23bn needed by Eskom.

Had there been a drawn-out process for the government to dispose of its investment, the Vodacom share price would have come under pressure, said Mr Matjila. "And that would have negatively affected our investment in the company as well."

There was a discount of 10% based on the fact that it was such a large transaction, Treasury spokeswoman Phumza Macanda said. A wide range of options was considered before deciding on the sale of the Vodacom shares.

"The PIC’s offer to government was in line with pricing quoted by other institutions when taking into account the large size of the stake and also provided the added benefit of keeping the shares within the broader family of public sector-related institutions," said a Treasury statement.

Before the transaction, the PIC held about 3% of Vodacom, and will now be the second-largest investor after Vodafone’s 65% holding. The PIC has more than R1.5-trillion in assets which it manages on behalf of the Government Employees Pension Fund (GEPF), and owns 16.91% in Vodacom rival MTN Group.

The government promised to transfer the first R10bn tranche to embattled utility Eskom by the end of last month, after selling off some noncore assets.

Last week the government converted a R60bn subordinated loan into equity, helping lower Eskom’s debt burden and creating more borrowing capacity.

The cash injection and the loan conversion strengthens Eskom’s balance sheet, lowering its debt-to-equity ratio from 75% to 69%, and will allow it to borrow more on capital markets.

Eskom is already borrowing on the strength of government guarantees, which this year total R152bn and are forecast by Treasury to reach R173bn next year and R183bn in 2017-18.

The utility is expected to borrow a further R250bn in the next five years.

This week the National Energy Regulator of SA turned down Eskom’s request for a further electricity price increase that would have raised a total of R52.8bn in revenue for the next two years but which would have resulted in electricity costs averaging 25% more than last year.

Meanwhile, the GEPF is expected to name Abel Sithole as the principal executive officer, two sources close to the institution said on Wednesday.

A former MD of Metropolitan Holdings, Mr Sithole has been acting in the position since John Oliphant was fired last November after a year-long suspension and disciplinary inquiry.
Source: BDLive 2 July 2015