It is one made more difficult by the fact that many shareholders have no idea how to value their shares or, indeed, how to trade them.
Sasol’s Inzalo shares, like a growing number of public and private BEE deals, can be traded “over the counter”, allowing black investors to sell their shares to other black investors and realise some profit before the deals mature. In Sasol’s case that is in 2018.
Similar listings will soon add 350 000 new investors to the pool.
This month’s “listing” of Imperial Holdings Ukhamba shares on the platform will be followed in short succession by MTN’s Zakhele shares, Media 24’s Welkom Yizani and Vodacom’s Yebo Yethu shares early next year.
With the exception of Zakhele shares, which will trade on MTNZ.co.za, all the shares can be traded via Equity Express, an online trading platform helping to create a market for black investors.
Shares trading on the site include Thembeka Capital; Phuthuma Nathi (Multichoice); Eyomhlaba (African Bank); Hlumisa (African Bank) and Inzalo (Sasol).
Trading remains slow, with liquidity levels of between 6% of market capitalisation trades a year in the case of African Bank’s two schemes, and 18% in the case of MultiChoice’s Phuthuma Nathi shares, which is the most liquid.
In comparison, JSE liquid shares have a level of 120% or more, says Etienne Nel, director of Equity Express.
Although trading is slow, the pricing of BEE shares is becoming transparent and this is encouraging trading.
One of the least liquid shares is Sasol Inzalo. “Trading the Inzalo share is a more complex process than the other shares,” says Craig Gradidge co-founder of Gradidge-Mahura Investments.
“When Inzalo was launched in 2008 the shares were heavily over-subscribed,” he adds. “So there is a long tail of small investors, which does not lend itself to active trading.”
In 2008 Sasol issued two different types of BEE shares. The first offer gave investors exposure to ordinary shares, at a 17% discount. These are listed on the JSE’s BEE board (SOLBE1) and rank equally with Sasol’s ordinary shares, with dividends and voting rights. They are tradable only among qualifying black South Africans for the duration of the empowerment period. In September 2018 the SOLBE1 shares convert to SOL shares
and will then be tradable among all investors.
The second offer saw investors pay between 5% and 10% of the value of the Sasol share in 2008. That translated to between R18.30 and R36.60/share – R18.30 for the first 100, and then R36.60 for every share over 100. These shares are now trading at R60/share and the deal matures in 2018.
At this point one Inzalo share will translate to one Sasol share. There is concern about debt levels. The balance of the share price was funded with debt and at one point following the financial crisis the value of the debt was increasing faster than Sasol’s ability to pay it off using dividends.
“Fortunately times have changed,” says Gradidge, “and the deal is starting to stand up again.” It is still likely that when the deal matures in 2018, up to 50% of the debt will still need to be repaid. At this point a percentage of Inzalo shares will be sold to settle the debt.
MultiChoice’s Phuthuma Nathi shares are popular with black investors. “Liquidity is also a function of the issuer,” says Nel. “MultiChoice chose to make their Phuthuma Nathi shares available to black individuals as well as black stokvels, trusts and investment companies. This helps to drive liquidity.”
Conversely, less-liquid Abil shares are available to black individuals only. African Bank’s troubles are also weighing heavily on the value of the Eyomhlaba (the first BEE deal) and Hlumisa shares (the second deal). Eyomhlaba is trading at R6.51, up from the R4 issue price, but well below net asset value of R12.64.
Investors interested in investing in the Ukhamba shares, MTN Zakhele or Welcome Yizani shares can register to do so now.
Of the coming listings, MTN Zakhele is attracting the most interest – possibly because when shares begin trading on
November 25 they will be worth north of R100, considerably more than the R20 issue price. A UBS report values the share at R137.
Whether liquidity constraints allow the share to reach this level remains to be seen.