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18 May 2009 11:03
Shares in South Africa’s Vodacom made a strong debut on the JSE on Monday, reassuring investors after the Congress of South African Trade Unions (Cosatu) almost blocked one of the biggest listings in Africa’s largest economy.
The stock was trading at R63,10 by 08:18GMT, giving South Africa’s leading cellular operator a market value of R93,68-billion ($10,85-billion), ahead of analysts’ valuations of R70-billion to R85-billion, with more than 1,5-million shares traded.
The listing has been closely watched by investors after a trade union and industry regulator launched a last-minute legal attempt to block it because it forms part of a deal that gives United Kingdom-based Vodafone control of Vodacom in one of the biggest foreign direct investments in South Africa.
The rand, which had been knocked by the efforts to derail the debut on Friday, firmed slightly on Monday.
A court threw out the challenge on Sunday, but the case intensified fears of resurgent union clout under new President Jacob Zuma and raised questions about South Africa’s reputation as an investor-friendly emerging market.
Despite tough conditions, Vodacom hopes investors will buy the stock for its solid dividends—it has vowed to pay out 40% of its maiden headline earnings—and exposure to markets with big growth potential.
“It’s a bit higher than our valuation, it’s quite a good price,” said Irnest Kaplan of Kaplan Equity Analysts.
Under the deal, government-controlled Telkom has sold a 15% stake in Vodacom to joint-owner Vodafone, giving it 65% of the firm and expanding its emerging-market footprint.
Telkom is spinning off the remaining 35% to its shareholders and the government, its top shareholder, has pledged to hold 10% of Vodacom for at least a year.
Vodacom runs cellphone networks in five African countries and bought Gateway Communications last year to beef up its data business, but has struggled to keep pace with the rapid expansion of rival MTN into Africa and the Middle East. One analyst said that based on his own profit estimates, Vodacom was trading at a discount to MTN because of MTN’s superior growth prospects.
MTN trades at about 11 times this year’s earnings according to Reuters data
Vodacom is due to release annual earnings on Tuesday.
Vodacom’s chief executive said Vodafone’s financial muscle and global clout would help the South African company to reach more customers.
“This transaction is shifting Vodacom up a gear and will give us far more scope for growth,” chief executive Pieter Uys told a presentation ahead of the listing.
Vodafone, the world’s largest cellphone group by revenue, has already brought R20,5-billion into the country to fund the deal, so blocking it would have hurt the currency.
Telkom slid 50% as expected after spinning off its main earnings driver. Vodacom joins the JSE Top-40 index.
The debut is the biggest on the JSE since British American Tobacco launched a secondary listing in October and became the top blue-chip by market value.—Reuters
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