Johannesburg, 31 Jan 2003
Analysts expect Telkom to list at the bottom of the R33.50 to R40.90 price range provided in the prospectus.
The release of the Telkom prospectus yesterday sent analysts and potential investors scrambling for their pencils as they tried to work out exactly what government wants from the privatisation of the telecommunications utility.
Telkom is due to be listed on 4 March on the Johannesburg Stock Exchange. American depositary shares (ADS) will make their appearance on the New York Stock Exchange (NYSE) the same day.
Fund managers, stockbrokers and analysts say government is determined to raise at least R6.8 billion from the listing as this will cover about half of the targeted R12 billion budgeted to be raised from privatisation this year.
According to the prospectus, between 139.3 million and 167 1 million shares will be listed at a price that will range between R33.50 and R40.90. South Africans with valid identity numbers and local postal addresses can receive a 5% discount and those from historically disadvantaged backgrounds qualify for discounts of 20%, with the minimum purchase being R500.
"Whatever happens, government has allowed itself a fair amount of play with which to meet the R6.8 billion," says Kevin Brady, head of trading at Investec Securities.
Joanne Baynham, a fund manager at Appleton Asset Managers, says she expects the share price to be at the bottom of the range.
"That is a gut feel at the moment and the reason is that there are a lot of issues affecting telecommunications shares on a global scale and generally listing prices do occur at the bottom of the range."
Baynham says retail response has been good with about one million individuals reportedly signing up for the Khulisa offer for historically disadvantaged people.
In terms of the prospectus, between 25% and 30% of Telkom`s 557 million shares will be listed. This leaves the Tintana consortium with 30% and government will hold the remainder. US telecommunications group Southern Bell Corporation owns 60% of Tintana and Telekom Malaysia the balance.
"Taking that into account, it means that Telkom is valued from R18.4 billion to about R22.8 billion and we say that any valuation between R20 billion and R22 billion is attractive," Brady says.
A term that raised some eyebrows in the investment community is the ADS, which is another acronym for American depository receipts - a method by which a number of SA companies are listed on the NYSE. ADR is the acronym that most South African asset and fund managers understand.
"Why the consulting investment banks, Deutsche Bank and JP Morgan, used ADS, meaning American depository share, is beyond me as it did cause some confusion," says one irate fund manager who wished to remain anonymous.
ADRs are receipts given to US investors for shares held by a sponsoring American bank so that they do not have to deal with issues such as currency conversions. While the ADRs as such have no direct voting powers, the sponsoring bank can canvass ADR holder views and vote as a block. However, this is seldom done.
Telkom is expected to appear at either number 33 or 34 on the JSE`s top 40 companies index, which uses the FTSE system of weighting the market capitalisation of a company with the size of its free float, ie the number of shares available for trading.
"What affects its placement is just how long current and future shareholders have to keep their shares as this will affect the size of the float," an analyst says.
In terms of an agreement with government, Tintana will not sell its shares for six months after the initial public offering (IPO) and the Khulisa shareholders have to hold onto theirs for three months.
Despite the current malaise affecting telecommunications shares and the concerns about the tradability of the Telkom shares, stockbrokers expect the IPO to be well supported.
"Certainly government pension funds and parastatals such as the Industrial and Development Corporation will make place for holding Telkom shares and that should support the underlying price," says Rice Rinaldi Securities dealer Justin Fletcher.
Furthermore, the listing will inject some much needed liquidity into the JSE, which has had its own issues of falling share prices and falling investor confidence to deal with. The smaller stockbrokerages are also hoping that individual investors will use them to buy and sell, and so increase trading volumes.
"All round it is not a bad thing for the broking community," Fletcher says.
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