National Empowerment Fund (NEF) chief executive Philisiwe Buthelezi has described the fund’s offer of discounted shares in MTN as “unique, exciting and historic”.
There have been other retail offerings reserved exclusively for black people over the years, most recently Telkom’s Khulisa scheme.
The prospect of getting a piece of a company that has shown spectacular growth by focusing on investing in developing countries is surely exciting. But does the Asonge share scheme, which opened this week, further the aims of BEE?
What’s good about the scheme is that it is a better version of broad-based empowerment than those of consortia that have often been involved in big BEE deals.
With one or more lead partners and many individuals and black organisations, at least one of these consortia proved simply to be a vehicle for the lead partner to get a handsome stake by buying out the smaller members of the consortium.
Some other consortia have proved to be unwieldy and ultimately unsustainable. Most, having served the purposes of advertising the deals as being broad-based, are never heard of again. The National Empowerment Consortium, which at one stage provided the empowerment credentials for MTN and Johnnic Communications through Johnnic Holdings, seems to have just faded away.
The Asonge scheme will give ordinary black South Africans with money to spare the chance — by offering a reasonably safe opportunity — to make money in the medium term through investing in a blue-chip company.
The way it works is that the individual can subscribe for a minimum of R2 000 and a maximum of R50 000 worth of MTN shares at a discount of 20% on last Friday’s closing MTN share price of R99,51. That means shares now worth upwards of R100 are available for R80.
One has to keep the shares for at least one year. They can be sold after that, but if held for at least two years, the shareholder gets an extra share for every 10 still held.
Stokvels, burial societies and registered savings groups can buy up to R100 000 worth of discounted shares.
Remember that the NEF is bearing the cost of the sale of the shares, which a broker would normally charge, so that is a plus.
The bad? It has been pointed out that the kind of spectacular gains the members of the Khulisa broad-based scheme have seen are unlikely to be repeated with MTN. When shares were offered in South Africa’s telecommunications giant Telkom in 2003, the company was listing and was at the beginning of its monopoly-assured growth path. MTN is a much more mature company.
The immutable law of investing is high risk, high reward and, though this is mitigated by the discount, the stock exchange is still a risky place. The risk attached to investing in shares is that any number of factors outside of MTN’s control could hit the share price. No one is expecting anything untoward, but such is the nature of disasters: if anyone could anticipate them, they wouldn’t be disasters.
Those with long memories will remember that the 300 000 new shareholders created in 1989 when Iscor was privatised — the shares neither discounted nor the shareholders locked in — would probably have had a bitter introduction to capitalism as the share went on a roller-coaster ride in the following years, though they would have scored in the very long run.
MTN has surprised sceptical investors before, breathtakingly so when it went into Nigeria in a move many thought was risky but turned out to be marvellously profitable.
This scheme, like other retail schemes, will do nothing to enhance black business or radically change the ownership pattern of the economy. Broad-based empowerment is essentially passive investment, while narrow-based investment at least has the prospect of influencing the strategic direction of the company.
What are these retail share offerings really for? Broad-based schemes are not without cost — who pays for the 20% discount and the cost of publicity and scheme management, after all? In this case it must be seen as state revenue foregone.
In Eastern Europe, broad-based offerings were seen as a way to overcome resistance to privatisation and the restructuring of previously state-run economies. Similarly, employee share ownership schemes in the UK were seen as promoting “people’s capitalism”. Here, broad-based schemes are a way of overcoming resentment about the “enrichment of the few”. But while they might serve the political purpose of keeping a lid on criticism for a while, so far they show no sign of displacing narrow-based empowerment.
For an established company looking for BEE partners, it is easier to find a black individual or company, especially since only one or bonus points are won in the scorecard for broad-based schemes.
In any case, if you have the cash and are an African, coloured or Indian South African, you have until August 16 to apply. I am not a personal finance expert, but I would take a punt. The odds are much better than those slot machines offer.