Sasol’s Inzalo black economic empowerment (BEE) transaction, which was completed earlier this month, could well exceed expectations in what is one of the country’s largest BEE deals so far.
Despite some concerns regarding the terms of the share offering for the black public in particular, the transaction saw long queues at post offices, where the public deal was on offer, and deadlines extended twice to meet demand.
The deal saw the sale of 10% of the company to Sasol employees, selected parties and interest groups, as well as to the black public.
The bulk of estimated sales, 4% of the 10% on offer — 25-million shares — went to the company’s Employee Share Ownership Scheme. But it was the offering made to the black public that has generated the most excitement.
According to Sasol, the black public offering is designed to reach as broad a base as possible, targeting both individuals and groups. About 18,9-million shares were made available — 85% under the funded offering, the other 15% under the cash offering.
The funded offering allowed for a small cash deposit on a minimum of 25 shares. Sasol facilitates the balance and the final money paid out is determined at end of the transaction period, either after three years or 10.
The cash offering allowed for the purchase of shares at a discounted rate of R366 a share. The offering opened on May 22 and was extended to July 9.
Sasol could not comment on the final figures and uptake of the offering as the company is still in the ”information-gathering stage,” said Sasol spokesperson Johann van Rheede. But the company should complete its final analysis shortly, on which it will release a statement, he said.
One analyst who did not want to be named said the public offer clearly appealed to people with free cash to spend. Potential buyers at the bottom of the economic ladder would have less money to invest, given the pressures on food and fuel prices, he said. The funded option provided by Sasol has made it more accessible to the general public.
The obvious question is whether those with enough money can buy up as many of the shares as possible, eroding the offer’s broad-based appeal.
Sasol has tried to guard against this by reserving the right to allocate shares from ”the bottom up”. Where shares are oversubscribed, the company allocates them to the smallest subscribers. This ”starting from the bottom of the pyramid” approach, he said, is a good way to increase the diversity of new shareholders.
The shares come with some tight restrictions. Both the cash option and the funded option must be held for two to three years before they may be traded. Thereafter they can be traded only to other black South Africans until the full lock-in period of 10 years has passed. Only then can the shares be traded freely.
Sasol’s shares are closely linked to the oil price and the rand exchange rate. This means that their profitability depends heavily on developments in the oil market in the next decade.
”My personal view is that the 10-year view is very difficult to determine. I would be quite bullish in the short term, but very few can estimate the price of oil in 10 years,” the analyst said.
He pointed out that Sasol is an excellent company with a good track record that has done well for shareholders, which mitigates the risk to a certain degree.
Analysts have argued that these qualifications sour the deal somewhat. Furthermore, Moneyweb reported that for a 10-year lock-in period any share should be traded at a discount of 30%. The Inzalo cash option was reportedly sold at an 11% discount at the time of the transaction.
But this did not deter buyers. Sasol extended the deadline for the sale of shares twice during the transaction period and buyers faced long queues at South African Post Office branches. The Post Office also reportedly extended its working hours to 7pm on July 9 to cope with last-minute demand on the final deadline day.
Gopolang Ntlha is one buyer who felt that the Sasol offering was worth the risks involved. He should know — he works as a business analyst for a major bank. One of the main reasons he bought shares is that he believes Sasol to be a good company and that it will still be making profits 10 years from now.
Ntlha chose the funded option because, as he pointed out, the debt generated through the discounted shares is not his own — it lies solely with Sasol. But the lock-in period was a minor disincentive for him.
”The 10-year lock-in did concern me and the worst part is [that if you want to trade] it can only be to other black people,” he said. ”So I only put away money that I knew I could lock away for 10 years.” He would have probably invested more, he said, had there been fewer strings tied to the offer.
Another concern for Ntlha was how the restriction on trading with fellow BEE participants would play out practically. ”There is no over-the-counter [trading] history for that in South Africa,” he said.
How this is to be managed remains to be seen.
Ntlha is not concerned about the volatility of the oil market. Sasol’s inputs are largely locally based and they mine their own coal for use in their coal-to-liquid fuel operations, leaving investors largely protected from these market pressures, he said.
In addition ”there’s gloom and doom all over the world” regarding oil supplies and Sasol stands to profit from that, he said, given the company’s coal-to-liquid fuel technologies.
”They’re a safe investment for starters,” said Ntlha, ”and overall their business model works for me.”
