As MTN’s empowerment vehicle – MTN Zakhele Futhi – draws nearer to delisting, shareholders are still disgruntled due to a lack of returns since it made its debut a decade ago.
The empowerment vehicle – which trades under share code MTNZF – this week said it had issued a circular on its website about a meeting regarding a scheme of arrangements that will facilitate its delisting. The meeting is set to be held in mid-January.
While the announcement to shareholders states that additional details are available on MTNZF’s website, ITWeb could not find any documents and neither MTNZF nor MTN responded to a request for this public information.
Value erosion
Under the planned exit process, MTNZF will repurchase all shares owned by members of the empowerment vehicle at 15c each. At the same time, it will distribute R20 to each member as part of the winding up.
However, the R20 payout is the offer price when the shares were bought when MTNZF was launched in 2016. MTNZF replaced MTN’s original Zakhele Scheme, which ran from 2010 and was unwound in November 2016.
MTNZF shares have declined 99% in value since listing.
If shareholders had invested the initial R20 purchase price, those shares would each be worth R50, assuming they were invested at the average prime lending rate of 10% on a compound basis.
Instead, they have lost 99%, with MTNZF stock sliding to 16c. Because of the R20 payout, shareholders will now effectively get back a little more than they put in, as MTNZF has not paid any dividends during its existence.
Explanation required
Investors are resentful. Comments on ITWeb’s previous article about the unwinding include statements such as “the only people who benefitted from MTNZF was MTN, the preference shareholders and the useless board members/directors of the MTNZF who winded up scheme at wrong time so that the BEE shareholders do not see any proper return on their initial investment”.
Preference shareholders are owners of special shares that give them priority over ordinary shareholders when it comes to dividends and payouts if a company is wound up. They don’t lend the company money, but their shares are designed to be safer, with more predictable returns, though usually with limited voting rights and less chance to share in big growth.
Another comment states: “Really, they wasted our time. From 2016 till now. No dividends were given to shareholders, and their promise was dividends were gonna be given after 3 years now that 3 yrs had multiplied itself by 3. We had high hopes but little did we know that every effort we made was of no use.
“No communication nothing, we had to figure out ourselves. What a shame on MTNZF. I will never advice anyone to take chances by putting their money on them again hoping to get something better in return. We waited almost 9 years for us to get the same amount we put. Such a disgrace.”
A third notes: “This Whole silence is killing Us, MtnZf and Mtn Board need to meet soon and have an honest discussion about Mtnzf shareholders who have their hopes on Mtnzf…”.
There is also a comment from a reader who bought 5 000 shares for R5 000 (according to the comment) which states: “Where’s the dividend??How long must I wait… DIABOLICAL.”
Overall, there are more than 24 comments, none of which are positive towards MTNZF. These comments have only been edited for punctuation.
Reversed loss
MTNZF, which had indicated in early September it would respond to negative comments on ITWeb’s previous article – “we will come back to you with any further thoughts or comment” – did not respond to four e-mails this week requesting this input.
The company indicated this morning after the fourth e-mail that it would revert as soon as possible, yet was unable to do so by our deadline.
Previously, MTNZF said that, given its performance was tied to MTN and the carrier had been facing difficult macro-economic challenges, the scheme, set to end last November, was extended to November 2027 to avoid crystallising losses.
Despite this extension, the board decided to wind down and delist early. The fund adds that unwinding the scheme “enabled shareholders to preserve value and minimise the risk of diminishing returns”.
With the special dividend of R20, those invested will see a 20% return over a nine-year period for those not subject to dividend withholding tax (DWT) or 16% for those subject to the 20% DWT rule, it says.
“Had the scheme not been extended, MTNZF shareholders would have lost their entire investment value,” MTNZF says.
MTNZF’s latest results, for the six months to June, show that it continues to make a profit after moving into the black for the year to last December. Year-on-year, it says it recognised a profit after taxation of R2.8 billion compared with a R239 million loss.
Since MTNZF’s income is wholly based on dividend payments from MTN, it earned R265 million in dividends.
“This income was used, firstly, to pay the company’s permitted operational costs and tax, with the remainder of the dividend income being used to pay dividends owing to the preference shareholders and to reduce the capital portion of the debt owing to the preference shareholders,” its results state.
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