Transnet to sell R5bn MTN stake

Johannesburg, 08 Feb 2006

South African transport utility Transnet has confirmed its intention to sell its stake in mobile telecoms group MTN, in a deal that is said to give the state-owned company a R5 billion boost.

This is the second time Transnet is attempting to shed the 5% interest held through the M-Cell Trust, after it failed to secure a buyer for the 80.4 million shares towards the end of 2003. Part of the deal will include an additional 1% interest in MTN held directly by Transnet Limited.

Transnet communications GM John Dludlu says the cash raised from the transaction will be injected in the second defined benefit pension fund, which has a significant actuarial deficit of R4.2 billion.

Dludlu explains that the transport utility has decided to take advantage of MTN`s strong share price performance to launch a book-building exercise, which will enable the group to realise maximum value for the fund.

Directly to market

MTN`s shares closed at R65 yesterday, which would put the value of the stake at R5.22 billion.

In terms of the book-building exercise, Dludlu says, Transnet will go directly to market, through an appointed institution, to sell the stake.

This is a different route than the one taken by Transnet in 2003, when government called for expressions of interest to purchase the MTN shares, as part of the transport utility`s strategy to dispose of non-core interest in various sectors.

At the time when Transnet named a preferred bidder in April 2004 - the Umthunzi Telecoms Consortium headed by black entrepreneur Sandile Zungu - MTN shares were trading at slightly under R35, which would have valued the stake at R2.4 billion, less than half of what it is worth today.

Sale derailed

However, the sale was derailed last year when Transnet CEO Maria Ramos broke off talks with Umthunzi Telecoms, prompting Zungu to threaten legal action.

However, it appears that Zungu has decided not to follow through, as Dludlu says there has been no further communication between Transnet and Umthunzi.

In terms of the capital benefits the deal will yield for the Transnet pension fund, Dludlu cautions that it should not be seen as a quick fix to the deficit. As the asset class MTN shares are already included in the fund`s balance sheet, the transaction would only serve to narrow the deficit to some degree, he explains.

"It is important to separate the deficit from what is being done here [through the sale]," he says, adding that Transnet is working on an unrelated long-term solution to the fund`s deficit.

MTN says it cannot comment on the sale, as it is a Transnet shareholder matter.