Welkom Yizani has refuted the accusations that its shareholders are being robbed as the scheme shares underperforms compared to its peers, instead blames market illiquidity for the poor performance of the stock.
The seven years old black economic empowerment (BEE) scheme, Welkom Yizani, opened for limited trading on Monday, the 9th of December 2013, and settled at about R10 per share at the end of the week. The 107 000 black people who invested in the scheme paid R10 per share at establishment of the scheme in 2006. This means their money has realised no capital gain in seven years. Some did sell below the entry price as the Welkom Yizani share did trade at levels below R10 during the course of the week.
Lurica Klink, Welkom Yizani Company Secretary, blames market illiquidity for the wider discount at which the stock is trading.
“Due to the high number of applications for shares in 2006 when the Welkom Yizani scheme launched, the general rule was to allocate a maximum of 430 shares per participant who entered the scheme. The majority of shareholders hold less than this and on average shareholders hold less than 150 shares. This necessarily contributes to the illiquidity of Welkom Yizani shares in the market currently. The laws of supply and demand dictate that this would suppress the share price,” explains Klink.
BEE is designed to widen ownership of the South African economy, which is still mainly in white hands 19 years after the end of apartheid.
The Welkom Yizani BEE shareholding scheme is invested in a Naspers subsidiary called Media24. The scheme holds 15% of Media24, a business largely invested in South African print media assets such as City Press, Daily Sun, Rapport, Beeld, Drum, Finweek, Kick Off, Top Gear, etc.
Klink argue that Welkom Yizani shares have traded for less than two weeks now and it is too early to draw any conclusions.
When Media24 concluded its Welkom Yizani shareholding scheme in 2006 it was promoted as the biggest BEE share offer to the public in South Africa’s print media industry. “We believe that it is in the interest of business and the country as a whole that opportunities for wealth creation be given to those who never had the chance in the past,” said Media24 in 2006 during the successful launch of the scheme.
Furthermore, Media24 said in 2006 that the Welkom Yizani shares sold to the black public under the guise of BBBEE were valued around R50 per share. Naspers loaned Welkom Yizani investors to the tune of R40 per share via a preference share structure.
However, Klink says the current price reflects the state of the market – at present there are more sellers than buyers.
Welkom Yizani believes that black participants to the scheme have already started reaping the benefits of being invested in Media24 through annual cash distributions.
“In Welkom Yizani shareholders paid R10 per share in 2006. Including the dividend received in September 2013, shareholders received R2,10 in dividends since 2007. Without taking any other factors into account, a Welkom Yizani shareholder’s net cash investment in Welkom Yizani in 2013, according to this calculation, is R7,90,” says Klink, adding that many other similar BEE share schemes in unlisted entities in South Africa have similarly started out with a low share price and over time the share price improved.
However, many black investors seem to be livid and some amongst them are calling for regulatory intervention.
When asked whether Media24 will intervene and assist black participants in the Welkom Yizani shareholding scheme, Klink points out that the shares are traded on a willing-buyer, willing-seller basis and neither Media24 nor Welkom Yizani can intervene in the market.
A number of BEE shareholding schemes are underperforming due to illiquidity, partly because of a small pool of potential buyers and lack of knowledge from black investors and access to trading platforms.
One thing seems certain here, is that the Welkom Yizani BEE shareholding scheme will continue to be more complicated for black investors.
This piece was first published in Tech Financials