Should I invest in MTN Zakhele Futhi or should I not?

This is a question that most qualifying individuals are asking themselves. My stokvel members and I will be meeting to discuss this question.

Having read a bit about the MTN Zakhele Futhi scheme, I have prepared the following input for  my stokvel;

  • I am very concerned about the scheme because in October 2015, MTN was fined $3.9billion [R60 billion] by Nigeria for failing to disconnect 5 million unregistered subscribers.
  • MTN paid R1.32 billion to the advisors that helped the company with negotiations to reduce the fines.
  • MTN is worth R240billion so a R60bn fine, though reduced down to R15bn, is no small amount for the company.
  • Business Times, 11 September 2016 indicates that the highest share price of MTN in the last 12 months was R192,95 and the 12 month low was R109,56 with the closing price of R116.70. This is a significant drop in the share price.
  • MTN Zakhele was launched in 2010  with a lock-in period of 6 years. So those who invested in 2010 were hoping to begin to receive dividends from their investment instead, they are told that Zakhele is unwinding and is being replaced by Zakhele Futhi.
  • Zakhele Futhi has a lock-in period of 8 years.
  • If MTN Zakhele shareholder chooses to reinvest in MTN Zakhele Futhi, the lock-in period will be effectively a total of 14 years for such an investor. No trading will be allowed from 2016 to 2019. From 2019 to 2024, there will be restricted trading between black participants.
  • MTN reported a R5,5 billion loss in its interim results for the 6 months period to end June 2016.

Based on the above, I have 2 questions that make me uncomfortable about Zakhele Futhi.

  1. Did MTN introduce Zakhele Futhi to deal with the negative impact of the Nigerian fine and to buy itself time?
  2. What factors make MTN believe that they will be able to deliver exceptional value for investors in 2024?

Poor governance is costly and even if Mteto Nyati, the new MTN South Africa CEO is able to turn the company around and ensure that it complies with good governance, the fact remains that damage has been done and the cost has been incurred.

So with all of the above, will I be investing in MTN Zakhele or not? As I was reflecting on this question, I reminded myself of one of the basic principles of a good investment and that is to diversify. I am generally very positive about  BEE shares but given all of the above, I have decided to follow my gut feel and not put all of my eggs in one basket. I will therefore be taking a speculative view on Zakhele Futhi. The share price costs R20 and one must buy a minimum of 100 shares so I am going to buy for only R2000. I will also be putting another R2000 in a tax-free unit trust. I will give you feedback in 2024 which one of the two performed better.

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