BEE: MTN Zakhele almost out of time

2015-02-22 15:00

Telecoms giant scrambles to find suitable trading platform for typical black shareholder, as exemption deadline draws to a close

MTN’s black economic empowerment (BEE) scheme, Zakhele, is scrambling after the regulator announced that its over-the-counter trading platform exemption would expire on March 31 and it might be forced to list on the JSE.

MTN Zakhele was launched by the multinational telecommunications giant in 2010.

The scheme allowed shareholders to buy shares at R20, while the rest of the share price was financed through notional vendor financing from the company, donations from MTN and funding from third party lenders.

MTN Zakhele owns 4% of MTN’s issued share capital.

The share price has performed well on the trading platform and has broken the R100 barrier.

Sydney Mhlarhi, founder and director of Tamela Holdings, which runs the platform on behalf of Zakhele, explained the exemption and noted that Zakhele had a number of options available to it.

“MTN Zakhele trades its shares over the counter and this means buyers and sellers meet each other on a trading platform. Trades are pledged anonymously and matched to the best price,” explained Mhlarhi.

“That activity, according to the FSB [Financial Services Board], has deemed it able to operate on an exchange without the requisite licence. There is only one exchange at the moment, the JSE.”

Chairperson of MTN Zakhele Thulani Gcabashe said, in a statement, that Zakhele had applied for the current exemption to be extended to November 26 2016. This is when restrictions on trading in MTN Zakhele shares will be lifted – and the requirement that shares be traded only among black people will no longer apply.

Zakhele and other BEE scheme platforms have been operating for several years, but the FSB has started a process of issuing regulations to try to administer them.

Mhlarhi said: “Essentially there are a couple

of options in those regulations: one is to list on a stock exchange that’s already regulated and licensed, the other is to apply for an exchange licence [so MTN Zakhele can apply for its own exchange and its own operation] or to shut

down the trading platform.”

If the platform shuts down, investors can continue to buy and sell shares but the mechanism for them to do so will be taken away and they will have to undertake bilateral deals and find buyers and sellers themselves.

“MTN Zakhele is exploring the alternatives, including listing on the JSE, which is currently having a look at its internal rules to determine to what extent they can make amendments that facilitate these schemes to live on their platform,” Mhlarhi explained.

This option could be a problem: one of the reasons the scheme was not executed through the JSE is that the typical shareholder being targeted through these schemes may not have access to a stockbroker. The JSE is geared to institutional or individual investors with high capital.

Added to this is the language barrier.

“In our scheme we have investors who are able to speak in a variety of South African languages with the call centre where they can place their buy or sell order and that is not the case when you go the route of an institutional stockbroker.

“Through the website they are able to directly place orders, but on the JSE you can’t directly place orders – you have to go through a stockbroker,” Mhlarhi said.

Gcabashe said MTN Zakhele would continue engaging with the FSB to find solutions for a controlled, secure and cost-effective platform for its shareholders’ trade.

Mhlarhi added that they were also in discussion with the JSE to ascertain how the Zakhele scheme could be facilitated.

“At the same time there are other companies who are working on applying for their own stock exchange licences, so those also provide an alternative for companies like MTN Zakhele,” he said.

For now, MTN Zakhele’s message to shareholders is “don’t panic”. It has promised to keep shareholders updated about discussions with the FSB and the JSE.

“Also it’s important to make [investors] understand that if the outcome is that we are not able to provide an alternative and therefore, come April 1, the platform to buy and sell will be switched off, that does not mean they can no longer sell their shares. It will just become a little more difficult, obviously, which is not ideal for shareholders,” Mhlarhi explained.

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