Second Installation (See first installation here)
The funded chapter of the Sasol Inzalo BBBEE scheme borrowed heavily to supplement the contribution by its investors. The borrowing (about R5bn) was achieved through complex formations. The structure published by Sasol and attached in this piece explains the formations.
While the target of the transaction was the JSE listed operation Sasol Limited, members of the scheme were not given a direct exposure to Sasol Limited due to the complex funding requirements.
Sasol Inzalo investors bought shares in a newly formed entity called Sasol Inzalo Public Limited. Their equity contribution went into this entity and was passed on.
Sasol Inzalo Public Funding applied the monies paid in by the members of the scheme and supplemented this with money borrowed from various financiers and Sasol itself. The finance to Sasol Inzalo Public Funding came in form of various types of preference shares. This means various financiers bought high yielding shares in Sasol Inzalo Public Funding.
What is a Preference Share?
In simplistic terms a preference share is like a loan given to a company by an investor. It is styled as a share that ranks higher than an ordinary share for dividend payment purpose.
Definition of ‘Preference Shares’ from Investorpedia.com
Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a company bankruptcy, preferred stock shareholders have a right to be paid company assets first. Preference shares typically pay a fixed dividend, whereas common stocks do not. And unlike common shareholders, preference share shareholders usually do not have voting rights.
In the case of Sasol Inzalo Public Funding which subscribed for Sasol Limited Preference Shares, the dividend payment was arranged as follows (as taken from Sasol Circular to Shareholders of 24 April 2008):
- R16.00 per annum for each of the first three years until 30 June 2011;
- R22.00 per annum for each of the next three years until 30 June 2014; and
- R28.00 per annum for each of the last four years until 30 June 2018.
The terms of these Preference Shares have since been amended as captured in the latest Sasol Inzalo Annual report.
“With effect from 1 April 2012, the Sasol preferred ordinary share dividend has been increased by 10% in accordance with contractual obligations. The revised dividend is as follows for the remaining years:
• R24.20 per annum for each of the next two years until September 2014; and
• R30.80 per annum for each of the last four years until 8 September 2018.
As such, you will be forgiven to think that Sasol Inzalo Public Limited is in a cushy position. But then remember that the scheme borrowed money and the latter flow is largely claimed by the financiers.
This is a second 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.
The first installment: http://www.ujuh.co.za/how-they-did-the-encumbered-sasol-inzalo-bbbee-scheme/