How MTN’s BEE shareholders lost out on a R1.3bn rally  

There’s not much hope of time easing any resentment that MTN Zakhele Futhi (MTNZF) shareholders might harbour about the precipitous winding up of their broad-based BEE scheme. Not only was the whole exercise done abruptly, it turns out it was executed at just about the worst time in terms of market pricing. 

MTN’s shares had suffered a relentless decline since early 2022, shortly after breaking through the R200 level. The share price eventually bottomed at just over R75 in July 2024. Things began to turn in August, and the momentum picked up early this year.  

However, in May came a hint that something was on the go. MTNZF issued a Sens announcement outlining what was owed to the various funders and providing an “illustrative example” of how this could be repaid. Essentially, by selling off most of its 77-million MTN shares. 

Then on June 11, the MTNZF board announced that “in the exercise of its discretion, [it] has determined that this is an opportune time to fully unwind the scheme and settle its funding obligations”.  

By June 20 not only had the preference shareholders been repaid, so too did MTN recoup the R6.4bn notional vendor financing it had provided in the form of MTN shares. 

There was just enough left over to pay the BBBEE shareholders R23 a share. Allowing for inflation, this doesn’t even cover the initial R20 a share they invested back in 2019. 

It seems the nerve-wracking unrelenting share price decline from early 2022 persuaded the MTNZF board, when they finally saw a sliver of blue sky, that the scheme should be closed as soon as possible. Recall that in September 2024 MTNZF had sunk to as low as R8. 

A spokesperson for the board tells Currency they looked at models and scenarios that could minimise potential losses for shareholders while protecting the initial investment as much as possible.

“At the time the decision to unwind was made, the MTNZF board noted the improved market conditions and a strong MTN share price as an opportunity to achieve this objective and ensure the best possible outcome for shareholders.”

The board believed delaying the unwind could have exposed shareholders to further funding costs, renewed market volatility, interest rate risks or macroeconomic shocks. 

Given it was a listed entity, the board had to be sure it could act promptly when the decision was made. This is why, in October 2024, it called a meeting at which shareholders were asked to vote on a resolution giving the board the authority to unwind the company at any time, and for whatever reason, it wanted to. Only 40% of shareholders pitched at this meeting, which was about average for MTNZF’s virtual-only meetings. They approved the resolution.  

Bad timing

For MTNZF shareholders the timing of the end-June closure was unfortunate to say the least. While this can easily be said with the benefit of hindsight, the fact is the decision seemed to totally ignore the signs of improvement in MTN’s fortunes evident in the first-quarter results for end-March.  

And in the roughly six weeks since the scheme was closed out, the MTN share price has shot up 23%, to R157.25, which means it has now recovered three years of lost pricing territory. Given that the MTNZF share price is totally dependent on the MTN share price and that it goes where MTN goes, the recovery in MTN would have dragged the MTNZF share price along with it. 

The surge in the MTN share price is primarily attributable to the spectacular turnaround in the performance of MTN Nigeria, but MTN Ghana also helped with a strong pick up in profit, underpinned by improved currency trends. An improvement in sentiment towards telco stocks has also helped support the share price. 

All of this means the 50.6-million MTN shares that MTNZF sold back to MTN at R126.99 each in late June would be worth R1.3bn more if they were doing the same deal this week. Put another way, the MTNZF shareholders would be R1.3bn better off if the deal had been done a few weeks later.  That may not sound like a huge amount of money but in the world of MTNZF shareholders and on a R10bn scheme, it is. It’s equivalent to an additional R10.50 per share.  

That’s nearly 50% of the approximate R23 a share in total they are expected to receive. “We’re R1m poorer because of the timing,” says one irked BBBEE shareholder, who struggles to understand why the scheme wasn’t kept open until 2027, which was the planned closing date. 

The final payout figure might be bumped up slightly depending on the price at which the last 2.5-million MTN shares are sold. But it will only be a marginal bump.  

There’s not much sign of another MTN BBBEE deal in the offing. The MTNZF spokesperson tells Currency “any shareholders who wish to remain exposed to the MTN share price can use the proceeds of the special distribution (R23) to invest directly in MTN shares”. 

_{Top image: Rawpixel/Currency collage.}