A significant achievement

Low interest rates  and high dividends   have enhanced the  value of the biggest  empowerment  schemes.

Investors who bought into the three biggest broad-based black economic empowerment (BBBEE) schemes over the past four years are reaping the rewards with their shares multiplying in value accompanied by handsome dividends. Four BEE deals totalling R48,5bn have been concluded by some of the country's largest blue-chip companies, attracting over 630000 black investors.

Stock values of Sasol's R29bn Inzalo public offering in July 2008 have more than quadrupled to R76/share over the counter (OTC). Owners of MultiChoice's (part of Naspers) Phuthuma Nathi shares have seen their initial R10 investment issued in 2007 jump to R58/share. The value of the MTN Group's Zakhele shares, according to its annual report, has grown more than threefold since the scheme was created in November 2010. The share is not tradable until 2013. Vodacom's R7,5bn YeboYethu share offering has ballooned by 42% from R25/share in 2008.

The common enhancing factors for these investments have been generous dividend payments and the lowest interest rates in history, which have enabled investors to service their debt that much quicker.

The companies and other funders provided loans to BEE investors to acquire the shares.

After MTN amended its dividend policy last year, distributing 70% of attributable profits to shareholders as opposed to 55%, dividend payments received by MTN Zakhele exceed its debt obligations.

MTN Zakhele came into existence by offering discounted shares valued [in Zakhele] at R5bn to 120000 black investors. At the time, MTN's shares were priced at R107,46. With MTN's share price closing at R143,73/share at end-December, the Zakhele stake increased to R6,5bn in value.

To acquire MTN shares Zakhele raised funds through the issue of shares to the black public as part of the Zakhele offer; a donation from MTN; notional vendor finance from MTN; and the issue of A and B preference shares to various funders, such as banks.

By 2011, MTN Zakhele had reduced its R720m debt obligation on its class B pref shares by over R381m , according to its annual report. It settled the balance of R289m in April this year. It still owes R1,4bn on the class A pref shares.

Since April 2011, MTN Zakhele has received R191,5m in dividends from the 80,9m shares it owns in the cellphone operator.

"This is a significant achievement and will improve the total returns to shareholders as fewer funds are required to service other funding obligations," says MTN Zakhele chairman Thulani Gcabashe in the annual report.


However, investors will have to wait a little over a year to know the market value of their shares. MTN Zakhele shares will open for limited OTC trading in December 2013. MTN's guidance gave an indicated value of R54,66/MTN Zakhele share when MTN traded at R130/share not too long ago .

Vodacom's increased dividend payout ratio has also benefited its 102000 individual YeboYethu investors, who own 3,4% of the company's SA business. YeboYethu put a R35,49/share valuation on its shares in the year to March, giving it a market cap of R936m, according to the annual report.

It has paid a total of 303c/share in four dividend instalments since 2009.

Though Vodacom SA contributes 72% of the group's revenue, valuing YeboYethu shares, which investors paid R25/share for in 2008, is complicated as there's no direct correlation with the listed share price , which reflects international operations, as well. Shareholders in YeboYethu will also get an opportunity to trade their shares OTC towards the end of 2013.

The 120000 investors who bought into MultiChoice's Phuthuma Nathi offering in 2007 have also been generously rewarded by the pay-television operator.

Since then the company has paid a total of 421c/share in dividends for an original cash outlay of R10/share.

The record high dividend of R17,50/share that Sasol paid to all shareholders in the year to June sent the value of its Inzalo BEE shares to a new high of R100/share on the OTC market at the end of September.

The Inzalo stock is currently trading at R76. Dividends received on the approximately 19m Sasol shares the scheme owns, together with capital growth, have increased its investment more than five-fold from the issue price of R18,32/share in 2008.

Black investors who have more money to invest and a shorter investment time horizon have another option to share in Sasol's wealth. The JSE launched the BEE board last year on which Sasol BEE shares subsequently listed.

Sasol BEE shares trade at around R100 less than Sasol shares trading on the main board and are underpinned by a historical 6,3% dividend yield. The company's main ordinary shareholders have to get by with a 4,6% historical dividend yield. The Sasol BEE stock is trading at R280; the company's main stock closed at R377,40/share at the time of writing.

BEE investors pay less to buy listed Sasol shares but receive the same dividend and voting rights as the holders of the main stock.

Only 2,8m BEE shares are listed and trade has been rather thin since the launch in February 2011. "Though we are not seeing substantial numbers of trades on a regular basis , approximately 130000 shares have been traded," says Sasol spokesman Jacqui O'Sullivan.

The BEE shares will automatically convert to ordinary Sasol stock at the end of the investment term in September 2018.


Analysts polled by I-Net Bridge expect BEE investors' fortunes to remain rosy in all four companies in the next three years.

They estimate that Sasol will earn as much as R48,51/share by 2015 and pay R21,04 of that in dividends. It paid a R17,50/share dividend from earnings of R42,28/share in the year to June.

MTN will probably raise EPS to R14,37 by December 2014, from the current R10,70, says I-Net Bridge. It expects the dividend to climb to R10,76/share from R6,22.

I-Net Bridge also estimates that Vodacom will increase its R7,09 EPSto R9,10 and pay a dividend of R8,52/share by 2015.

Naspers, which derives 61% of its business from MultiChoice's pay-TV platform, is estimated to raise EPS to R32,68 by the 2015 financial year and pay a dividend of R6,24/share.