The Welkom Yizani BBBEE investment scheme which listed on an over the counter (OTC) platform last week, the 9th of December 2013, nearly collapsed in 2009 but Naspers stepped in to save the scheme.
Remember that Naspers funded the Welkom Yizani BBBEE investment scheme to the tune of R40 per share to complement the R10 per share contributions made by members of the scheme. As we noted in the previous instalment of this series, things did not go well for the scheme in the first few years with the world economy struggling under the global financial crisis.
To mitigate the situation Naspers wrote off R330million of its funding to Welkom Yizani in December 2009. Naspers said this was to provide “Welkom Yizani shareholders a better opportunity to profit from their original investment despite the recession.”
This meant that the financial obligations of the scheme to the Naspers’ held preference shares were lessened allowing for the Welkom Yizani scheme to improve the value it delivers to its investors. Remember what we said in the first instalment of this series: The value in this scheme is directly derived from two critical factors being dividend flow from Media24 and enterprise value appreciation of Media 24. The dividend flow is critical in servicing the debt obligation and then declaring dividend to investors. With improved economic fortunes Media24 has been able to declare reasonable dividend to Welkom Yizani shareholders. New investors who want to enter the scheme should also focus on the dividend prospects of the scheme going forward.
Enterprise value appreciation is critical for the medium to long term because it speaks to the ability of the scheme to deliver capital return for investors. Remember that at the end of the scheme, Welkom Yizani shares in Media24 would have to be liquidated, shares sold, and the amount realised must then be used to pay back Naspers funding, redeem Naspers held preference shares. The difference from this liquidation will then be distributed amongst Welkom Yizani investors in accordance with their level of shareholding. As such you need a significant appreciation of Media24 asset base which then feeds into appreciation of Welkom Yizani net asset value (NAV).
Welkom Yizani NAV kicked in when the shares were listed for trading on the OTC platform. However as expected the Welkom Yizani shares are trading at a significant discount to their NAV due to liquidity limitations. Recent analysis from investment house Avior estimated Welkom Yizani NAV at R24.59. The Avior analysis did add that, “However, much as is the case with the Phuthuma Nathi scheme, we expect that Welkom Yizani will trade at a steep discount to its fair value…” This is as a result of the fact that:
- Welkom Yizani shares can only be sold to qualifying black persons/groups having a similar or higher BEE status/rating than the seller;
- Transfers are subject to approval by the WY Share Transfer Committee;
- Shares will trade OTC, further limiting liquidity; and
- Ordinary dividend levels imply a moderate ordinary dividend yield.
In their first week of trading Welkom Yizani shares were hovering around the R10 mark.
This is a third installation in a series that seeks to comprehensively explain how they made the Welkom Yizani BBBEE Scheme. The first two installments can be accessed here: