In March 2017, after a high court order that forced South African Reserve Bank shareholders who held in excess of 10 000 shares in breach of the bank’s statutes to sell their shares, the public was invited to subscribe for these 149 200 shares.
A colleague applied for 250 shares, enough for a single vote, offering R3 a share. The offer was accepted. She coughed up R750 and duly became a shareholder. Asked why she had bought them, she says“it was fodder for a story”, “a weird sense of patriotism”.
The shares come with an annual dividend of 10 cents, paying R25 a year in her case. By comparison, the R750 invested in a fixed deposit at, say, 10% interest would earn interest of R75 annually.
At the ANC’s elective conference in December 2017 a decision was taken for the bank to be nationalised.
President Cyril Ramaphosa told Parliament last week that South Africa is one of a handful of countries whose central bank is owned by private investors and the move to bring it under the control of its citizens will affirm the nation’s sovereignty.
Exceptions, according to the Reserve Bank website, are Belgium, Greece, Italy, Japan, Switzerland, Turkey and the 12 United States federal reserves. Central banks typically began life with private shareholders, but the norm now is for them to be state-owned.
The rand took a smack after Ramaphosa’s comments. Numerous commentators point out that its private shareholders influence governance by electing seven of the 15 directors. These seven must have expertise in agriculture, labour, mining and commerce or finance, but have no say over monetary policy, which is determined by the five-person monetary policy committee.
A creature of statute, the bank’s ownership structure can be seen to be anachronistic, but has a relatively modest cost of R200 000 a year in fixed dividend payments.
What costs could nationalisation bring? The Reserve Bank’s 750-odd shareholders hold the two million issued shares. Bank data, cited by Bloomberg, shows they are 80% local and 20% foreign, and South African commercial banks own just 2%.
The bulk of the Reserve Bank’s shareholders are individuals,but “include trusts, pension funds, unions, a library, an archbishop and even an Athens-based mental health hospital”, Bloomberg reported.
You can buy Reserve Bank shares on its website. The latest data, issued on March 7, shows no sellers, but buyers from R1.50 to R9.
So, at the ruling price of R9 and two million shares in issue, the whole shebang is worth just R18-million. Could the mighty Reserve Bank be worth so little? Even our constrained fiscus could afford this.
But then, why should it be worth much at all? Profits do not go to shareholders, but to the treasury. Most investors want profits to accrue to shareholders, not a third party such as the fiscus.
But some shareholders apparently think it is worth a bomb. Governor Lesetja Kganyago told Bloomberg that they “want to be paid to go away. ‘Show me the money, show me the money!’ is what they are looking for.”
The bank, in its high court application to restrict the holdings of shareholders to 10 000, pointed to the influence of activists who it said were trying to frustrate its workings to the point that the treasury would be forced to nationalise the shares to achieve “an asset-based compensation payment for the expropriation”.
The Reserve Bank, as custodian of the gold and forex exchange reserves of the country, has assets of about R700-billion. Shareholder activists have previously pointed out that, in the case of an event such as expropriation or nationalisation, they are protected by investment treaties such as with European countries, which trigger legal arbitration should a dispute be declared.
This is risky territory with little certainty of outcome, but you can be sure that proceedings will be protracted and expensive.
Ramaphosa has previously raised concerns about cost, saying nationalisation could cost billions of rands.
Assuming the worst possible outcome from a South African point of view, a R700-billion valuation suggests the two million shares would be worth R350 000 each. My colleague would be up for a relatively modest R87-million, a spectacular return for R750 invested, but not nearly as much as her fellow 750 shareholders, who would on average be in line for just under R1-billion each.