Sasol appoints a ‘market maker’ to boost empowerment shares

Sasol has brought in an investment firm to trade in its empowerment shares, in hopes that it will unlock value for black shareholders.

The synfuels and chemicals company announced on Thursday that it had appointed Ngonyama Capital — a BEE investment company owned by Anchor Capital and Cartesian Capital — as a so-called “market maker” that will buy and sell Sasol’s BEE ordinary shares, listed on the empowerment segment of the JSE.

Market makers essentially create a secondary market by buying up a certain number of shares to hold in inventory. 

According to Nicola Comninos, head of strategy and key clients at the JSE, a market maker’s role is to ensure the liquidity of a security, and has to be continually available to buy or sell when an investor wants to enter or exit the market.  

This makes it quicker and easier for other participants to trade in the share and, it is hoped, drives up the value of the stock too. 

Under the three-year agreement, Ngonyama — which counts businessman Mike Teke among its directors — will look to buy 100,000 of Sasol’s empowerment shares in the open market over the next six months.

The trading activity is, however, for its own account and sole risk, and independent of influence by Sasol. For its services, Ngonyama will be paid a fee of 15% of the average daily value of the shares it holds, spread over the three years.

The agreement aims to unlock additional value and improve the investment proposition for Sasol’s existing and prospective black shareholders, said Sasol CFO Paul Victor.

The Sasol BEE share has historically traded at a 25% discount to Sasol’s stock on the JSE. That discount has, however, widened to more than 50% in recent months. On Thursday, Sasol’s share traded at R417 while the BEE stock closed at R207. 

Sasol BEE shareholders receive the same dividends and voting rights as Sasol shareholders, but only black South Africans are eligible to hold the BEE shares.

Use of market makers is not uncommon in markets abroad and in SA; Comninos said the JSE, in fact, requires a dedicated market maker for an exchange-traded fund (ETF) issuer, exchange-traded note (ETN) issuer, and warrants issuer. However, there is no requirement for one in the equity market for BEE or other shares. 

The initiative will be good for the share price, according to Craig Gradidge, investment and retirement planning specialist at Gradidge Mahura Investments and himself a Sasol BEE shareholder.

“It’s quite innovative in the BEE space, none of the other ones have done something like this,” he said. “Liquidity constraints have a significant impact on the value of broad-based BEE shares in general, and this attempt at addressing this challenge is welcome.” 

steynl@businesslive.co.za