Sasol Inzalo masses will look at dividend with envy

Sasol shareholders should be pleased with news of a first half dividend that reflects 40% growth but sadly not all shareholders will be jumping up down in excitement.

The more than 200 000 black people who invested in Sasol’s funded BBBEE scheme, Sasol Inzalo, can only watch with envy.

A large chunk of the dividend due to the BBBEE scheme will be gobbled by debt obligations. There was hope that things might change after the 2013 Sasol Inzalo annual general meeting held in December. Shareholders expressed concern about the costs of debt behind the BBBEE scheme. Directors of the scheme seemed to concur with these concerns and said they have raised the matter with relevant stakeholders, Sasol and the funders. No news has come forth.

The funded Sasol Inzalo BBBEE scheme is apparently suffering under a pile of debt put in place at inception in 2008. Black people and groups were invited to buy into an instrument that captured Sasol shares for R366 per share. The targeted beneficiary of the scheme were subsidised through debt. They only paid between R18.30 and R36.60 for an instrument that was going at the Sasol ordinary share. The balance was funded through debt and mainly preference shares.

As always, the idea behind this structure is that the instrument held by the BEE beneficiaries will earn equity in time via appreciation of the share price and servicing of debt via dividend.

As it turns out the Sasol Inzalo debt is proving too heavy to be significantly diluted by the share price and dividend flow. At last year’s Sasol Inzalo AGM directors of Sasol and those of Sasol Inzalo were united in pointing out that the cost of debt is a bit heavy.

These directors include Sasol Group director Nolitha Fakude and two Sasol Inzalo directors Khungeka Njobe and Thandeka Zondi. They attributed this to timing. Interest rates were high at the time the scheme was put together. This means the funders of the scheme locked in high interest rates in line with cost of debt of 2008. While South African interest rates have declined significantly since then the funders continue to rake in income based on 2008 rates.

With South African interest rates movement now pointing upwards in 2014, hopes that the apparent negotiations will yield anything are diminishing.

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