The government killed two birds with one stone this week when it announced a crafty deal to raise $479-million from Transnet’s stake in M-Cell, writes Bongani Majola. The transaction, with Dutch finance company Ice Finance BV, provides a welcome cash injection for the state’s coffers, and also signals to the markets the government’s commitment to privatisation. The deal means the state gets the money, but also retains control of its M-Cell stake, allowing it to earn more when it is sold off further down the line in better market conditions. M-Cell is the holding company for MTN. The M-Cell announcement by Minister of Public Enterprises Jeff Radebe was part of a package of measures designed to bolster confidence in the rand. Most analysts hailed Radebe’s announcement of the sale of Transnet’s 20% M-Cell stake to Ice Finance BV as a necessary step in the right direction. “From the currency point of view,” says ING’s Andre Szczesniak, “it’s a good transaction as the government gets the $479-million. However, there is nothing in it for the shareholder of M-Cell [Transnet]. The deal amounts to nothing more than an interest-free loan to the government of South Africa.” The government has previously postponed the offloading of Transnet’s M-Cell stake because of confusion over policy and a downturn in global market conditions for telecommunication stocks. These problems also hit plans to list Telkom. The deal with Ice maintains Transnet’s voting rights and rights to dividends and director nominations intact until a foreign buyer is found. The bottom line, says Szczesniak, is that the government has leased its assets, at a profit, and “retained its rights until a strategic buyer is found”.
Ice Finance BV is a passive “buy-and-hold” investor and does not, according to Radebe, expect to sell the shares. So what is in it for Ice? Ice has close relations with JP Morgan, the finance house that will get a fee that has been estimated at $15-million from the transaction. And, according to JP Morgan’s vice-president Mark Hussey, Ice does not have any risks in the transaction, as “the risks have been hedged against any downward movement in the share price”. Hussey said: “It’s a win-win for both Transnet and Ice because Transnet monetised the stake, raised $479-million at an 18% premium and got to retain all the economic upsides as well as the right to direct the final strategic buyer.”
When M-Cell acquired 100% of MTN, a share-swap resulted in Transnet diluting its shares from an original 28% to 24%. Brian Molefe, Deputy Director General of Public Enterprises, said while he is not at liberty to divulge the exact amount of the commission fee that JP Morgan gets, the estimated $15-million “is way off the mark. In fact it is significantly far less.” But the arrangement gives Transnet the economic benefits of ownership and provides confidence to all stakeholders that their rights are preserved, Molefe said.
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