There is something very wrong when a government flogs stuff to an unsuspecting population.
For one, criminal law has a name for people who try to sell you stuff you already own. Except in this case, everyone had an indirect piece of the pie before the sale but only a handful will have a finger in it afterwards. Keep in mind that even if two million people take up the Telkom offer, it will amount to less than 5% of the population.
The government, in other words, is either being fiscally irresponsible or plain conniving.
Phillip de Wet, telecoms editor, ITWeb
Then there is the whole question of value. If the government truly believes that the dividends Telkom is to pay post-listing will be so great, why is it selling its stake with the sector in a slump? Why not hold on for a while, reap the profits and sell when the market improves?
The government, in other words, is either being fiscally irresponsible (and let`s not forget that it is our money it is playing with) or plain conniving.
But the biggest problem is still that the greater fools in the Telkom transaction will be gullible citizens; the very people a government like ours should be protecting.
Too much of a good thing
It is not that the government is acting like a second-hand car salesman who greases axles with a banana. The level of disclosure on the Telkom business we are seeing is nothing less than staggering. That is the problem. How many of our hypothetical two million local investors are likely to read all 400-odd pages of the unabridged Telkom prospectus? Of those, how many will understand the financials, or the complicated voting agreements or the huge impact a small change in technology or exchange rates can have on the business? Even the institutions will have trouble finding analysts qualified for the job.
Telkom has had half a dozen files packed with additional, highly relevant information available for inspection for a week. When I visited its corporate headquarters it took 20 minutes to gain access to the data. Suffice it to say no member of the public had beaten the way.
Maybe it is unfair to blame government for the apathy of small investors. You can disclose right in their face but you can`t make them drink.
On the other hand, government is not just treating the naive like seasoned investors, it is responsible for, and should be held accountable for, the rosy glow around the listing.
The constant pre-offer advertisements, probably the only corporate communication most individual investors will ever take notice of, did nothing to explain the pitfalls of a highly speculative telecommunications share. The booklets and educational sessions espousing the virtues of the equity markets never drew comparisons with money markets or just plain old savings accounts, which would have outperformed Telkom by several orders of magnitude over the last five years.
These small investors who will be putting R500 towards some Telkom shares are unlikely to have financial advisors to tell them to pay off household debt first.
Giving out this kind of advice is not a listing requirement. But then again, those who usually list companies are not responsible for the overall well-being of their investors.
The kind of people most likely to buy into Telkom are probably also those who play the lottery twice a week, because their best hope for financial salvation is a quick windfall. While investing in Telkom is certainly a better bet than 200 lottery tickets, this also raises a nightmare scenario. If they do not have much cash lying around, they could well borrow to fund a Telkom investment. People could actually go into debt to buy - this bears repeating - a highly speculative telecommunications stock.
The committed capitalist to whom R500 is small change may well just turn his back. The really hardened capitalist may even sit back and enjoy the show. Suffering and anguish make for great human drama and the satisfaction of seeing it coming will add much to the enjoyment.
But that discounts what could come once the show is over. If two million investors lose their life savings because of the defective goods the government sold them, chances are we`ll see some intervention. And not light-touch either.
The last time government intervened in Telkom`s business it tied us to five years of exclusivity. What the country lost due to the monopoly is probably incalculable, but it is astronomical. In return we got a net teledensity growth of about 3%. How keen are you to see it try protectionism again? Or for government to try and prop up a share price in the open market?
There are many, many things wrong with and scary about government intervention.
Misuse the Yanks
The overwhelming majority of South African investors will, however, follow a gem of investment advice. They will buy into a company they know and believe in. Telkom does, after all, enjoy some of the highest brand recognition in the country.
They will not have the faintest idea what makes the company tick or have an inkling of its prospects. Even if they understood the arcane field of stock valuations, they would not have the data to calculate fair value.
Make no mistake - there is something very wrong with a government owning a company that flogs stuff to the population too. Exploiting Yanks who can stand the risk is a brilliant idea. But knowingly targeting a poor rural population in some misguided inclusive attempt is not.
South Africans should become more active in determining their own financial destiny. Telkom shares are not the way to do it.
Share