The Department of Public Enterprise has given itself 18 months of breathing space with the announcement of a long-awaited "sale" of the 20% in M-Cell held by Transnet on behalf of government.
In what is best described as an asset-backed financing deal, the stake in the MTN parent company has been transferred to Ice Finance BV, a Dutch company closely associated with finance group JP Morgan, in exchange for an initial $475 million payment.
The payment represents what was at an 18% premium at the time it was announced. Despite the higher valuation of the company, the M-Cell share price came off the highs it reached on the speculation preceding the announcement as investors realised that a final strategic investor had not yet been found.
Although described as a sale, Ice Finance will not be able to sell its stake without the approval of both Transnet and Johnnic, a major M-Cell shareholder. Transnet also retains all the benefits of owning the shares, including voting rights and any dividends payable.
Government still intends to identify a final buyer for the stake through a competitive bidding process within 18 months. If Ice sells the stake to that bidder at a price above the $475 million already paid to Transnet, the government is to participate in the surplus. Any downside has been hedged through JP Morgan.
"This is a very innovative way of monetising the M-Cell stake which gives us greater flexibility in the restructuring process," says Department of Public Enterprise director-general Sivi Gounden.
Government has been trying to sell the stake for more than a year as part of its broader privatisation drive, which also includes the partial listing of Telkom. However, the crash in telecommunications share prices last year delayed both as potential buyers dwindled and government proved unwilling to accept lesser prices.
With the money from the M-Cell deal now in government`s pockets, even though it is less than half of what the stake was once valued at, the Department of Public Enterprise is expected to focus more attention on the listing of Telkom. JP Morgan is one of government`s advisors in that process.
M-Cell could potentially be valued substantially above its current levels by the end of the 18-month period. Revenue from MTN`s relatively new operations in Nigeria should be apparent by then, and M-Cell is also a strong contender to participate in the second national operator which is to be licensed this year.
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