To Buy or Not to Buy: MTN Zakhele Futhi Shares
During the year 2010 a lot of people were in a football craze and South Africans were excited about hosting the first ever FIFA world cup on African soil. But this was not the only thing people were excited about, they were also happy and excited because MTN had initiated their BEE transaction: MTN Zakhele BEE shares through the South African post office.
I remember that I wanted those shares so badly but when I reflect on my past and think about it, during the time when MTN invited shareholders through this deal, I was relatively young. In fact, I was in my early teenage years and didn't really know much about investing and how business works. The only business knowledge I had was heavily influenced by the commercial subjects I took in high school and the lessons I gained from observing and listening to my late brother u Bhuti Mkhuseli Magoqo.
My late brother had studied a course in banking at Damelin and also worked his way up in the financial advisory industry and was one of the most respected and achieved personal financial advisers in the greater KZN region -- He was a an authorised financial services provider-- and had a lot of knowledge about financial markets and the financial system in general.He had also worked his way up and earned himself awards in the highly respected old mutual 51 club.
I remember that he used to watch the financial news on SABC 1 with so much interest and he would talk to me about the economic and financial updates but I wouldn't understand, I listened and observed though and this further fueled my desire to own shares in JSE listed companies! On a lighter note, I also credit my love for Cricket to him, he used to make us watch test match cricket all day long during December holiday and I eventually started to love the sport, along with my other other brother Mbongeni Magoqo.
Now, back to the MTN Zakhele Shares...One Saturday morning on our usual weekend trip to the post office with my cousin Msizi Ngcobo -- to play the lotto and sports stake, we had big dreams I know -- I happened to come across a MTN Zakhele Prospectus. You know those booklets you find laying around at the post office -- Post bank and Mzansi bank account brochures-- This time there was also an MTN Zakhele prospectus amongst these documents.
I became curious about what this MTN booklet was about--I didn’t even know it was a prospectus at that time--so I let my curiosity get the better of me and I browsed through this booklet and saw that MTN was facilitating a BEE deal through the MTN Zakhele share investment scheme. I think the minimum amount to invest at that time was R 1 000 (am not to sure), but the shares were sold as R 20 per share.
Although I was curios about these shares reality did strike in…I didn’t have the money to invest as I was obviously not working and didn’t have a source of income. But most importantly, even if I had the money to invest I didn’t have the skills and time to research about MTN shares and determine if they were a worthy investment or not. I would have simply invested in MTN Zakhele shares simply because this deal was associated with a reputable company such as MTN.
On a lighter note I think I should have convinced my girlfriend--who is my EX now--to buy the shares for me, I know she would have made a plan…I also thought about asking my mom to buy them for me but even if I did, how would I have justified this expenditure to her or the value that these shares would derive? Uyazi nawe ukuthi omama banjani when it comes to money and rightfully so too!
6 years later I do have some regrets, I brush these away with the fact that I actually didnt have the money to invest because If I did have the money and invested in the shares, of course I would be in the money right now!
The Zakhele shares did very well over the 6 years --They mirrored the movement of MTN’s share price--everyone who invested in them actually made money and people who still hold them today are profitable. Even though MTN had some issues in these 6 years, the Return On Investment is still huge! But, investing in these shares without having a proper understanding of this BEE deal and of the MTN business model is quite dangerous. Yes, MTN did well through their first offering, but 6 years later is MTN still as strong as it was 6 years ago when it issued its Zakhele Shares?
We’ve all seen the recent fine imposed on MTN Nigeria by the Nigerian Communications Commission as well as the poor customer service MTN has had on their call centers – this was worse when their workers downed tools in mid-2015 – During that time you would call MTN customer service number and no one would answer the phones… frustrating I tell you. Long time MTN subscribers will also tell you that MTN was never the same company after that strike, their call centre service never recovered – Most probably they had to cut staff members because the thought of reducing salaries was not even an option as workers were on strike to get their salaries increased.
I’ve written this article with the aim of informing people about the latest MTN BEE transaction, which is known as the “MTN Zakhele Futhi” investment scheme. This article isn’t really about the steps you should follow when you want to buy the shares i.e. application process, so I won’t dwell too much on how you should apply but I will rather focus on WHY you should apply for these shares.
In doing I will highlight the structure of this deal outlining the financial structure as well as the underlying terms and conditions--There’s always terms and conditions--so that people know if they should invest in this scheme or not. I want people to make informed decisions and not merely invest in these shares because there is MTN attached to it--just like how I would have done 6 years ago if I had the funds available to invest.
Understanding the deal these shares are offered through will aid you in making an informed decision when you are contemplating whether to buy or not to buy these shares. I have decided to structure the article through touching on the following key points:
- What is the MTN Zakhele share investing scheme?
- The application process
- The structure and conditions under which the deal stands.
I will outline the procedural steps/application process solely because I want to ILLUSTRATE the minimum conditions that must be met in order to see this deal go through. I won’t be wasting your time with unnecessary fluff and jargon, I know how busy you are… So here we go!
What is the MTN Zakhele share investing scheme?
The MTN Zakhele Futhi share Investing Scheme is MTN’s 2016 BEE transaction which aims to raise approximately 9 873 200 ( close to 10 Million Rands) in capital in order to finance the purchase of MTN Group ordinary shares. IF the required capital investment is successfully raised, MTN Zakhele futhi--which is a special purpose company -- will then purchase newly issued MTN group ordinary shares that will amount to about 4% of the total market capital of MTN group. I say if because the deal has so many terms and conditions that must be met if it is to successful. This amount will be raised through various sources of finance which are as follows:
- MTN Zakhele Futhi IPO
- Corporate Sponsors
- MTN Notional Vendor Finance
- MTN 20 Percent Discount on the total value of the transaction.
Another way to understand this investment scheme is to decipher the meaning of the word “scheme” in an investment context. A scheme is a plan and this is an investment plan that involves more than one investor. Just like a collective investment scheme, this investment plan will pull funds from different stakeholders in order to achieve the underlying goal of purchasing shares that will be equivalent to about a 4% stake of MTN group.
Once these shares are bought -- if the minimum investment funds are met -- MTN Zakhele will be a shareholder in MTN through having bought this 4 % stake in the company. So what does this mean for you? Well this means that if you invest 2000 in this scheme you will have 100 MTN Zakhele Futhi shares that will derive their value through mirroring the MTN group share price. The investment scheme and company "MTN Zakhele" is a ring fenced company that was solely incorporated as a public company for this investment only.
It is like a derivative of some sort, I say this because the value of the MTN Zakhele futhi share price is pegged on the value of MTN group share price which trades on the JSE. This raises an important question a lot of investors should ask themselves… do you actually think that MTN can grow over the years and increase its share price significantly?
This deal will also be financed through the purchasing of preference shares to MTN Zakhele. This means that the public will be owners of this company and also these corporate giants. Their funding will be done in a form of preference shares as opposed to ordinary shares.
Then the 3 banks which are:
- Nedbank’s CIP
- Rand Merchant Bank
- Absa
MTN Zakhele futhi is a standalone incorporated public company, not a subsidiary of any mother brand. This company was solely created as a vehicle to drive and facilitate the mtn BEE deal popularly known as Zakhele futhi shares.
The prospectus was registered with the companies and intellectual property commission (CIPC). One thing to also note is that MTN Zakhele futhi is a ring fenced company. This is made obvious to us as the public by the letters (RF) written next to their name, what does this mean?
As MTN Zakhele is an investment company that is created to manage the 4 % stake in MTN the structure of the deal requires the company to be ring fenced. Ring fencing simply means that a company imposes certain restriction to shareholders and also separates its asset holding without necessarily separating its business operation, this is done through drafting a company specific Memorandum Of Incorporation.
In normal circumstances a business entity does not separate its financials for no reason and it usually does this so that it can separate its business activities and impose certain restriction, I will touch on this on the last point in this article.
The application process
Unlike buying shares in JSE listed public companies through a share trading account the Zakhele Futhi share subscription will be done manually through participating Nedbank branches. Although you can capture some of your details online, you will have to visit your nearest participating Nedbank branch to finish off your application and submit FICA documents. The people working there should assist you with your application.
The minimum amount to invest in the scheme is R 2000, each MTN Zakhele futhi share will be sold at 20 per share and investors are required to invest a minimum of 2 000 rands on this investment. Which means that you will invest and own a minim number of shares which is: 100 (20 x 100) = 2 000. Th application process is as follows... To read the full article kindly visit my website Lokshin Online Learning Academy - LOLA
[ This Article Was Originally Published On the LOLA Website]