Eskom funding: Govt loses R2.8bn on Vodacom sale

Vodacom is one step closer to a Neotel tie-up. (Duncan Alfreds, Fin24)
Vodacom is one step closer to a Neotel tie-up. (Duncan Alfreds, Fin24)

Johannesburg - The government sold its entire stake in Vodacom for about R25bn, raising funds for state-owned power utility Eskom amid a countrywide electricity shortage.

The 13.91% holding in Vodacom was sold to the state-owned Public Investment Corporation, Africa’s largest money manager, at a 10% discount to the 30-day average price, the National Treasury said.

That means the government agreed to a sale price of about R25bn, or R2.8bn below the market value, according to data compiled by Bloomberg.

“The sale of the Vodacom stake was the most viable option for ensuring that government was able to swiftly realize the proceeds and inject equity into Eskom to bolster the utility,” the Treasury said. “The PIC’s offer to government was in line with pricing quoted by other institutions when taking into account the large size of the stake.”

South Africa has worked out a R23bn bailout package for Eskom, which is building new plants to resolve the power shortage in the continent’s most-industrialised nation. The utility has a R225bn cash-flow shortfall and has been carrying out planned load shedding every other day this year as demand exceeds supply from aging power stations.

Neotel approval

Vodacom shares traded 2.8% higher at R142.56 at the market close in Johannesburg, the highest since May 18. The stock is up 12% this year, compared with a 4.3% gain on the FTSE/JSE Africa All-Share Index. On Tuesday, the company was granted provisional approval by the Competition Commission to buy internet provider Neotel for R7bn.

While the government isn’t on a “campaign to sell state assets,” the cabinet will conduct a review of corporate investments to determine if it wants to retain them, Finance Minister Nhlanhla Nene told reporters in Pretoria.

“We are on a campaign to make sure that what we have is what the state needs in order to pursue its development agenda but at the same time that we do not hang onto something that is not core to the government’s function,” he said.

South Africa holds a direct stake of just under 40% in fixed-line phone company Telkom. The state also owns shares in companies including Kumba Iron Ore, Sappi and Life Healthcare Group through the Industrial Development Corporation.

Fiscal shortfall

Nene has pledged to provide Eskom with financial support in a way that doesn’t undermine the national budget to avoid the risk of a credit-rating downgrade. The government is seeking to narrow the fiscal shortfall to 2.5% of gross domestic product in the year through March 2018 from an estimated 3.9% this year.

The PIC, which manages government workers’ pension money, becomes Vodacom’s largest shareholder after Newbury, England-based Vodafone. Vodacom has more than 61 million customers across Tanzania, Lesotho, Mozambique, the Democratic Republic of Congo and South Africa.

“Vodacom is a well-managed blue-chip South African company with credible exposure in the rest of Africa and strongly underpinned by its corporate governance practices,” PIC Chief Executive Officer Daniel Matjila said in a statement.

“Telecommunications is one of the key drivers for both economic and social development.”

Vodacom has “a constructive relationship” with the PIC, which has been a shareholder since the company started trading in Johannesburg in 2009, spokesperson Richard Boorman said in an e-mailed statement.

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