Telkom CEO Sizwe Nxasana has told parliamentarians there was ”nothing untoward” in his company’s policy of being able to buy back up to 20% of its own shares as it increased the value of the remaining shares for all shareholders.
This follows the emergence of a consortium — led by former director general of communications Andile Ngcaba, ruling African National Congress spokesperson Smuts Ngonyama and former Transnet finance director Gloria Serobe — as buyers of the remaining 15,1% stake in Telkom from the Thintana consortium.
The news comes amid complaints from the Congress of South African Trade Unions (Cosatu), which said in a statement on Wednesday that it is concerned by former officials — such as Ngcaba — using their previous connections to profit.
Cosatu suggested a legally imposed period of cooling off for former officials to be involved in business associated with their previous line function.
Spokesperson Patrick Craven also asked if Ngonyama’s close contact with President Thabo Mbeki as his adviser gave him special access to confidential information.
Both Ngcaba and Ngonyama were not immediately available for comment, although Ngcaba promised to respond in due course.
Responding to Inkatha Freedom Party MP Suzanne Vos — who asked whether such buy-back action could be justified in the context that it could ”ramp up” the Thintana shares — Nxasana said the decision had been taken at the annual general meeting in January — and confirmed at a general meeting in October — for the company ”to buy back up to 20% of our issued shares”.
He told MPs there is ”nothing wrong with that” as the buy-back programme is the same sort of thing as paying a dividend.
He said if the company is generating cash and pays dividends, it will attract secondary tax on companies, which stands at 12,5%.
”Buying back shares is a more effective way of returning cash to shareholders.”
Addressing a National Assembly communications portfolio committee meeting, Nxasana said the board set a limit on the price ”so that we are not overpaying” for the shares with the intention to cancel those shares ”to result in fewer shares that are in issue”.
The effect will be to enhance the value of all the shares.
”Now we have a smaller number of shareholders still participating in a company with a market capitalisation that is growing,” he said. ”For all shareholders, the value of the company is enhanced.”
He noted that the government owns 38% of its shareholding.
Nothing ‘untoward’
Referring to an article in noseweek entitled ”Enron’s in at Telkom”, he said it seems to suggest that something ”untoward” took place. This is not true, he said.
The article said the Companies Act prohibits a company from assisting in financing the purchase of its own shares. The Act reads: ”No company shall give, directly or indirectly any financial assistance for the purpose of a purchase by any person of any shares of the company or its holding company” — except in exceptional circumstances, such as when it has surplus capital that it wishes to return to shareholders.
Vos said Nxasana did not inform MPs what these exceptional circumstances were.
noseweek noted that Thintana paid just R29 a share for its 30% original holding in Telkom in 1997. It also noted that Telkom’s share price was up to the low seventies, making Thintana ”an excellent investment”.
noseweek noted that within days of getting its special resolution registered in March — which Nxasana said had been passed by 95% of shareholders — a wholly-owned Telkom subsidiary named Rossal No 65 purchased 3 185 736 Telkom ordinary shares at an average price of R74,58.
It reported further that Acajou, another subsidiary, bought millions of Telkom shares in June. It reported that Telkom had bought R1,7-billion-worth of shares by September 9.
Telkom’s share price hit an all-time high on Tuesday of R95 a share. On Wednesday, it closed at R91,80.
Telkom spokesperson Ravin Maharaj said on Wednesday there was nothing out of the ordinary about the two annual general meetings. The one in January had been held a little late.
”One of the resolutions gave the company permission to buy back shares when it needs to,” he said. This had been renewed in October to ascertain ”what shareholders were thinking”. — I-Net Bridge
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