/ 15 December 2008

MTN eyes new BEE deal

South African cellular network operator MTN on Monday announced plans to implement a new black economic empowerment (BEE) transaction during the first half of 2009.

“As currently conceptualised, it is envisaged that the BEE transaction will comprise between 5% and 6% of MTN’s issued ordinary share capital,” the operator said in a statement to the JSE.

MTN said its South African operations comprise 29,5% of the value of MTN as based on MTN’s South African operations’ relative contribution to MTN’s earnings before interest, tax, depreciation and amortisation (EBITDA) for the six months to end June 2008.

On an illustrative basis, using EBITDA contribution as a proxy for value, the BEE transaction would effectively equate to 21,2% to 25,5% of MTN’s South African operations.

MTN plans to launch a public offer that will be open to members of the South African public who are black people as defined in the Broad-Based BEE Codes in order to broaden participation in the BEE initiative.

The group said it intends to assist in raising finance for the BEE transaction with the cost of this assistance estimated to be less than 0,75% of MTN’s market capitalisation.

Long-term progress
“The MTN Group as a South African-based multinational telecommunications company listed on the JSE has been and remains committed to the principles of BEE,” said MTN chairperson Cyril Ramaphosa.

“We believe these proposals are important for the long-term progress of MTN and will facilitate sustained and meaningful BEE participation in the company,” he added.

To date MTN has derived the major portion of its BEE equity ownership points from the Alpine Trust, which holds 13,1% of MTN though a company known as Newshelf 664.

This structure was scheduled to unwind by December this year, leading to a significant reduction in the number of MTN ordinary shares held by or for the benefit of historically disadvantaged South Africans.

As a result of the unwinding, MTN said a dividend of MTN shares would be declared to the Alpine Trust beneficiaries on the unwind date.

MTN has in the meantime entered into a memorandum of understanding with the Public Investment Corporation (PIC) regarding the orderly unwinding of the Newshelf structure and setting out the PIC’s role in the new BEE transaction.

“After the dividend to the Alpine Trust, the PIC will effectively have all the economic exposure to the MTN shares held by Newshelf. Because the liabilities of Newshelf to PIC match the value of MTN shares held, Newshelf will then have a nominal value,” said MTN.

Newshelf’s outstanding funding obligations to the PIC are estimated to be R21,8-billion while the MTN shares held by Newshelf carry a market value of R24-billion, said MTN.

To facilitate the winding up, MTN has agreed to acquire Newshelf for a nominal value and settle or acquire all outstanding funding obligations in Newshelf through the payment of R400-million in cash and the issue of approximately 213,9 million shares representing approximately 11,5% of MTN’s issued share capital.

This means MTN will effectively acquire 13,1% of its shares held through Newshelf (carrying a market value of R24-billion) in exchange for the issue of 11,5% of its capital.

Facilitate new transaction
“The majority of this effective discount will not be retained by MTN, but will be used by MTN to facilitate the new BEE transaction,” the operator said.

The PIC has also agreed to make available from its equity portfolio up to 6% of MTN’s ordinary share capital for the purposes of the BEE transaction.

Including the shares being issued under the new BEE transaction, this should translate to about 25% to 30% of MTN’s South African operations.

But MTN warned “the ultimate size” of the BEE transaction might change depending on market conditions and the extent of reinvestment by Alpine Trust beneficiaries. — I-Net Bridge