Judging by the publicity of Telkom’s sale of shares to the general public, its ”retail offering” was a tremendous black empowerment success. ”Telkom proves genuine empowerment is cash in hand”, ran a Business Day headline recently.
Indeed, for those who did apply for shares, the listing and further sale of the former state-owned telecoms utility has been a windfall. The company offered shares at a 20% discount to black individuals and stokvels, a price of R22,40. Since Telkom listed around one year ago the share price has climbed steadily, almost reaching R78 at one point, and closed on Tuesday at R72,50. So an individual who bought R500 worth of shares under the Khulisa offer could make a clear profit of around R1 000 if he or she sold now.
If you were looking at the continuing privatisation of Telkom from the point of view of ”broad-based” black economic empowerment, however, you would be justified in asking, ”What is the big deal?”
The Khulisa share offer, while it attracted many black investors who have profited handsomely, translates into less than 1% ownership of Telkom’s issued shares.
The only empowerment stake Telkom did have has vanished. Small empowerment entity Ucingo raised around R565-million from various funders to buy a 3% stake in March 2001 at a price of R33,90 a share.
The deal underlines a fatal flaw of the early empowerment deals: borrowing to acquire equity in the hope that the price would soar when the company listed. As it happened the listing took longer than expected, as investor enthusiasm for telecoms companies waned after the irrational exuberance of the 1990s. Though Telkom’s share price did shoot up after listing, it was too late for Ucingo. Unable to continue paying the interest on its soaring debt, it had to throw in the towel.
So Telkom has no empowerment shareholding, unless the government decides to divest some of its 38% or so of the company. At the current share price, though, 10% of Telkom could cost around R4-billion. Which empowerment grouping could come up with that sort of money? And what happens if the share price has peaked or levels off when new competition arrives, if the second national operator ever gets off the ground?
When the government first sold 30% of Telkom to strategic equity partner Thintana, comprising United States company SBC Communications and Telekom Malaysia Berhad, in 1997, 5% of Telkom was supposed to be warehoused by the National Empowerment Fund. That hasn’t happened either.
Telkom exemplifies just how difficult it has been to use privatisation for empowerment, though there have been inspiring successes. However, the best opportunities for speedy empowerment are small, non-core assets that don’t need complex financial engineering or high gearing.
When it comes to privatisation of major assets, selling equity for the sake of empowerment is like any other black economic empowerment deal. The more valuable the asset, the harder it is to arrange financing.
Big Deal is a regular column on black empowerment deal-making. Reg Rumney is the executive director of BusinessMap