Picture: ISTOCK
Picture: ISTOCK

Even before last week’s MultiChoice announcement, the Phuthuma Nathi (PN) BEE scheme was considered one of the country’s most generous. The dramatic, but not unexpected, announcement that Naspers would distribute its MultiChoice holding to Naspers shareholders as soon as it has sorted out all the regulatory obligations, mentioned a figure of R12bn in value creation for PN shareholders.

The potential benefits of the unbundling process will considerably enhance this generosity, and in the process make other BEE offerings, such as Vodacom’s YeboYethu, MTN’s Zakhele and Sasol’s Inzalo, look a little tight-fisted.

Naspers spokesperson Meloy Horn says ordinary dividends paid to PN shareholders since inception amounted to R6.2bn and the capital gain to an additional R5.7bn.

Naspers offered eligible black people an indirect interest of 15% in MultiChoice SA in September 2006. The offer, which was pitched at R10 a share, was three times oversubscribed. About 120,000 applicants received the 45-million shares on offer. A few months later an additional 7.5% stake was offered to applicants who had not received their full allocation. This block of shares is now referred to as PN2 while the earlier allocation is referred to as PN1.

The original 22.5% stake in MultiChoice was reduced to 20% when MultiChoice shares were issued to fund the acquisition of the remaining 40% interest in M-Net/SuperSport in 2007.

At the end of the first day of over-the-counter trading in December 2011 the share price was at R28, a significant advance on the R10 issue price but way off the R120 most analysts had been expecting.

In recent years the shares have traded as high as R180, but they are more often seen stagnating below the R100 level. The price inevitably spikes ahead of the remarkably generous annual dividend payments. The most recent was R19, which because of the stagnant share price puts PN on a Ponzi-like yield of over 19%.

The long-term sluggish share price performance is attributable to two factors often associated with BEE shares. There was no plan to convert the PN shares into freely tradable equities or cash, which one BEE fund manager said left investors dealing with a form of ghetto capitalism. The second is that investors had no useful reference for valuing PN.

The proposed listing of MultiChoice Group will help on both counts, which is why the PN shares almost doubled to a high of R160 in the days after the announcement.

The "ghetto" tag won’t disappear but Naspers is giving PN shareholders the opportunity to exchange 25% of their PN shares for MultiChoice Group shares shortly after the listing.

"This is to create some liquidity for the PN shareholders as, from our engagement with them, we know that their ability to unlock value through more freely tradable shares is an important issue," explains Horn.

She says at this stage it is not possible to indicate at what ratio the shares will be exchanged. "That will be determined by fair value at the time and would be subject to PN board and shareholder approval."

At the same time Naspers is planning to allocate an additional 5% of MultiChoice to PN shareholders. The extra 5% is equivalent to an additional 25% of PN’s holding in MultiChoice, which means that each PN shareholder will be left with his or her original holding after completing the exchange.

Essentially the two-step process means Naspers will donate 5% of MultiChoice to PN shareholders and allow them to trade it in for listed MultiChoice Group shares.

One of the biggest beneficiaries of the planned unbundling will be Brimstone, which holds 4.7-million PN shares. Brimstone CEO Mustaq Brey says the MultiChoice investment has been "very good for us", though it highlights concerns about investors being locked into an investment indefinitely. "It has created a lot of wealth for blacks," says Brey, noting that Brimstone is in line to pick up 1.2-million new PN shares for nothing. This is on top of a likely doubling of the value of its existing holding, which was at R500m on its end-June balance sheet.

Craig Gradidge of Gradidge-Mahura Investments says the unbundling is "obviously excellent news for PN shareholders". He says the generous dividend has compensated for the lock-up, providing shareholders with a dividend yield that exceeds the long-term capital and dividend return on most equities.

He acknowledges that the situation would be helped if the government shifted policy to "once empowered, always empowered".

In the longer term the major benefit for PN shareholders will come from investors being able to reference the listed MultiChoice Group to establish a price for the PN shares.

"Without a reference price no-one knows what discount to apply to the BEE shares," says the disgruntled BEE fund manager.

Referencing the listed MultiChoice Group share will be complicated by the fact it includes MultiChoice’s African operations, to which PN shareholders have no exposure.

But given that these are currently loss-making, their share of MultiChoice Group’s total value is likely to be minimal.

Analysts’ estimates for MultiChoice Group’s initial market capitalisation vary between R90bn and R120bn. At which end of the scale the share price settles will depend on the growth story MultiChoice CEO Imtiaz Patel tells over the coming months.

An additional consideration is the possibility of selling pressure from Naspers’s international shareholders, who may not be keen holders of MultiChoice Group shares.

But whatever happens, things are looking good for PN shareholders.