Gugu Lourie (Tech Financials)
The empowerment deal done by Media24 is not doing well raising fears that it might see more than 100 000 investors lose faith in such initiatives that link broad-based black economic empowerment (BBBEE) transactions to over-the-counter trading market.
Welkom Yizani is a BBBEE scheme for Media24, which owns Daily Sun, Rapport, City Press, Drum magazine and other publications. But as a result of underperformance, Welkom Yizani is now under the spotlight.
With sellers and buyers unable to create an active market over-the-counter trading platform, the share price of Welkom Yizani is seriously floundering and some shareholders are becoming so despondent and they are beginning to say they were duped by Media24. The Welkom Yizani shares closed on Friday at R10 after more than 8 123 shares valued at R81 321 changes hands in a thin trade as always, valuing the shares at paltry R146m.
At face value there is an element of truth to this assertion.
When the shareholders invested in the scheme in 2006 they paid R10 per share and surprisingly their investment has remained the same until today. This in short, implies that Welkom Yizani shareholders have not realised any capital gains in their investment for seven years – the stock is trading over-the-counter at around R10 – the same price they paid in 2006.
As a result desperate investors have sold below the R10 price.
Responding to questions about the underperformance, Welkom Yizani Company Secretary Lurica Klink said this week: “Media24/Welkom Yizani would have preferred that their shareholders get an even better return on their investment, but we cannot interfere in the market. All shares are traded on a willing buyer/willing seller basis. The performance of the shares is a function of buyers and sellers and unfortunately, there are more sellers than buyers.”
BBBEE is meant to encourage big corporates to increase black ownership under rules established to address economic imbalances after the end of apartheid in 1994.
Even though Welkom Yizani is not delivering good returns for investors the truth of the matter is that Media24 has done well in complying with the BBBEE regulation.
“It should be remembered that throughout the period, shareholders (in Welkom Yizani) have received dividends in the total amount of R2.10 (up to September 2013) on their shares. However, investing in shares remains a risky alternative and no guarantees can be provided,” explains Klink.
A frank assessment indicates that the scheme has only paid R2.10 in dividends since 2007. Therefore, a true reflection is that Welkom Yizani shareholders’ net cash investment in the Media24 scheme in 2013 was R7.90. That means at the current trading price investors are still making a profit.
But clearly that profit is so low, making it a futile exercise to hold onto these shares.
Welkom Yizani’s shares have traded for more than two months over-the-counter trading platform.
While market illiquidity has been blamed for the wider discount at which the Welkom Yizani stock is trading, when asked if there was anything that Media24 could do to alleviate the pain felt by its investors Klink responded: “There are no plans by Media 24 to look at any form of bailout”.
If Welkom Yizani shareholders compare their BBBEE scheme against others such as the recently launched Vodacom’s Yebo Yethu and MTN’s Zakhele, it stands to reason that they will feel cheated by Media24.
When companies listed on the stock exchange realise they are underperforming they usually delist their stocks. Does it still make any sense for Media24 to allow Welkom Yizani trading platform to continue unabated when it is not creating any value for its investors?
“We think it is important that our investors have a platform to enable them to trade their shares. We would hope that the share price will improve once the overhang of sellers in the market has worked its way through the system. Investors have to be patient though. Another scheme in our group (Naspers), Phuthuma Nathi, also started trading in the teens. These shares are now almost R100 per share,” says Klink.
Asked if Media24 would consider approaching the department of trade and industry (DTI) for an exemption because its BBBEE scheme – Welkom Yizani – was failing to leave up to expectations, Klink says: “We can only act in terms of the legislation which does not provide for any form of exemption.”
Nevertheless it seems Media24 could pressurise the DTI to accept the fact that “once empowered, always empowered”.
For now Naspers and Media24 are complying with the BBBEE regulations. The 2006 deal was classified as phenomenal success, and was regarded as a success by Media24 – notwithstanding the underperforming share price.
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.
Klink said the company was concerned about the under performance of the share price but acknowledge that the process remains a function of the market.
That having been said more than 100 000 shareholders have become disillusioned by the BBBEE schemes.
This piece was lifted from Tech Financials with permission