How they did the encumbered Sasol Inzalo Scheme

In 2008, JSE listed petrochemicals giant Sasol invited black members of the South African public to subscribe for the Sasol Inzalo BBBEE scheme.

The scheme was part of a broader deal which promised to deliver 10% of Sasol Limited (the group) shares to members, black individuals and groups. It was touted as a R27bn deal shares as follows: broad-based groups (15%); members of the black public (30%); Sasol Employees (40%) and the Sasol Inzalo Foundation (15%).

The strike price of the deal was set at R366 per Sasol ordinary share which represented about 17% discount to Sasol price back then.

The retail scheme came with two options, the funded option and the cash option. In the cash option people paid in R366 per share and there were about 76 000 (Seventy six thousand) takers. Here, we are dealing with the funded option.

About 214 000 (Two hundred and fourteen thousand) individuals and groups subscribed for the Sasol Inzalo BBBEE scheme. The scheme was allocated about 16 million Sasol Limited ordinary shares.

In effect Sasol issued 16 085 200 Sasol Preferred Ordinary Shares at the Issue Price of R441 per share giving this portion of the transaction about R7 billion total price tag.

Each participant paid in between R18.30 and R36.60 for each share of Sasol Inzalo scheme. This raised a total of about R2.1bn.  The Sasol Inzalo share was designed to track Sasol Limited ordinary shares allocated at a strike price of R366 per share but trading around R441 per share.

The difference between the amount paid by Sasol Inzalo BBBEE scheme members and the Sasol Limited ordinary shares was funded by debt and mainly preference shares. The difference as apparent in the above figures would have been in the region of R4.9bn. This is the money which needed to be borrowed to implement the scheme. And so they borrowed. The idea was that Sasol’s dividend flow and share price performance would significantly outstrip the cost of debt thus delivering equity gains to the contributions made by the Sasol Inzalo investors. It was always going to be a difficult play. The market had peaked together with interest rates.

This is a first installment in a series that seeks to comprehensively explain the funded portion of the Sasol Inzalo BBBEE Scheme. Stay with us. Our next installment will follow shortly and all will be clear.

Second Installment: http://www.ujuh.co.za/how-they-did-the-encumbered-sasol-inzalo-scheme-ii/

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