Cash from year one in Vodacom’s BEE offering

Like the recent Sasol Inzalo BEE deal, and MTN’s Asonge offering, Vodacom’s R7,5-billion Yebo Yethu BEE deal offers shares at a discount to the black public. All are good deals. All are solid, major companies. Both the telecommunications companies have shown spectacular growth and Sasol has scored because of the surge in oil prices.

One big difference between the Vodacom retail offering and that of Sasol is that there is no option to buy shares outright for cash. All the shares the black public can buy, indirectly, in Vodacom South Africa are in a sense vendor financed.

In this BEE deal 14,4-million shares are on offer to black groups or black individuals, not directly in Vodacom SA, but rather in an entity called Yebo Yethu. Of that number of shares, 3,6-million are reserved for Vodacom’s black business partners. Yebo Yethu’s only asset is a stake in Vodacom SA worth R90-million.

Nadya Bhettay, Vodacom’s group executive for corporate finance, says Vodacom is financing 74% of the purchase by the black public.

You have to buy at least 100 shares at R25 each, an outlay of R2 500.

In other BEE public offers the share dividends go to pay off the shares that you eventually get. In the Vodacom transaction you get dividends on half the money you pay for the Yebo Yethu shares: for instance, if you buy 100 shares you will get dividends on R1 250-worth. So from the first year those who take part in this scheme get cash out.

Vodacom has been generous in its dividend policy, paying out about 90% of profits, says Bhettay, and the major shareholders have guaranteed that at least 50% of the profits will be paid out.

Another big difference is that Vodacom SA is, as yet, an unlisted company, a subsidiary of Vodacom Group. The ownership of Vodacom Group, in turn, is split 50-50 between Vodafone, based in the United Kingdom, and Telkom.

Investors generally prefer owning shares in listed companies because of their greater transparency and accountability. Vodacom is so massively profitable, however, that they would make an exception in its case. Indeed, the coming trade in Yebo Yethu shares, though restricted initially to black people, will be the only way to get exposure to Vodacom, unless Vodafone buys Telkom’s share and takes the company public.

It is known that Vodafone would like majority control of Vodacom, but whether it would list the company is another matter. If it does, the 14,4-million Yebo Yethu shares will be converted into R90-million Vodacom SA shares.

Participants cannot sell their Yebo Yethu shares for five years. After that the shares can be sold — but only to other black people at first. After 10 years they can be sold to anyone. This is similar to ­Sasol’s BEE deal, in which most of the shares on offer were funded and had a “lock-in” — the term for this restriction — of two to three years before selling to other black people. As with Vodacom, the shares are only freely tradable after 10 years.

For employees, the employee share ownership scheme is a gift. Only 1,55% of Vodacom SA will end up in employee hands, a bit lower than the 3% norm. Bhettay says this is a good deal all the same because of the relatively small number of employees and the benefits are skewed towards the lower-paid.

The minimum benefit will be R100 000. At the lowest level the benefit will be up to 200% of salary, and at the top level 40%.

Employees will be “locked in” for seven years and will get a proportion of their entitlement if they leave. So if you are an employee who leaves after year one, you still get 20% of the shares you were entitled to — though you can trade those shares only after seven years.

The other participants in this BEE deal are the Royal Bafokeng and Thebe, chosen for the broad base of their beneficiaries and because they have the cash to take part.

A point missed in much reporting of this deal is that Vodacom is doing this to comply with legislation. The net result of the deal, Bhettay says, is that Vodacom will be close to scoring seven points more than it has now on the BEE scorecard of the department of trade and industry’s codes of good practice, to reach 70 points. This will make the company, she says, one of the top 15 empowered companies in South Africa, better than its main competitor, MTN, and in line with Telkom.

There is nothing for mahala, as slogans painted on minibus taxis’ behinds say — except for BEE deals. The discount available on the shares offered is indeed “free” and the companies are lending a helping hand to enable black people to buy them.

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