Shareholders to MTN Zakhele: Where’s our return?

Shareholders in MTN‘s empowerment scheme, MTN Zakhele, grilled the company at its AGM, questioning why they had not received a dividend.

According to a report in the Business Times, while MTN Zakhele is seen as one of the most successful empowerment schemes in the telecoms industry, shareholders are yet to receive a cent back.

This is in contrast to shareholders in Vodacom’s similar scheme, Yebo Yethu, which have enjoyed dividends right from the start.

MTN Zakhele is, to date, South Africa’s largest empowerment scheme in the telecommunications industry.

The R8.2 billion MTN Zakhele transaction was concluded in 2010 as part of MTN’s ongoing efforts to further its BBBEE objectives in South Africa.

The scheme was funded through:

  • R1.6-billion brought in by around 121,000 ordinary people;
  • Almost R1.3-billion in MTN donations;
  • Vendor funding of R3.2-billion from MTN;
  • And investment banks which paid in R2.2-billion in return for class A and class B preference shares.

Why no dividend?

According to the Business Times, although Zakhele was given dividends of R632-million last year – thanks to its 4% stake of MTN – the funds were swallowed by running costs and the need to repay its funders.

Zakhele chairman, Thulani Gcabashe, fielded questions from shareholders on resolutions on refinancing plans to Kgolo Qwelane, the scheme’s financial adviser.

Qwelane explained that the company’s plan is to raise third party debt by issuing further Class A cumulative redeemable preference shares.

The scheme aims to then use the funds to purchase shares in MTN, whose shares will be used to reduce a portion of the notional vendor finance (NVF) balance owing by MTN Zakhele to MTN.

Yebo Yethu

According to the Business Times, Vodacom’s Yebo Yethu scheme operates by paying dividends directly to shareholders (after dedcuting running costs).

Dicidends reached a reported R20.2-million this year, compared to R6.5-million in Yebo Yethu’s first financial year, the paper said.

Notional funding is serviced by deducting a portion of dividends declared by Vodacom before the balance is paid over to Yebo Yethu.

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Shareholders to MTN Zakhele: Where’s our return?