| Mon 14 Feb 2005, 9:00 | | Old Mutual BEE deal faces forex riddle |
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Old Mutual BEE deal faces forex riddle
Stephen Gunnion
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Financial Services Editor
OLD Mutual faces a number of unprecedented hurdles as it finalises the deal that will see it selling a 10% stake in its South African operations to empowerment partners.
The group said last week it was still on track to announce a deal within the first quarter of the year.
However, the company could not say how the deal would be structured or whether it would sell a stake in the listed group or in the underlying South African business, as required by the financial services sector charter.
It will need Reserve Bank approval if it plans to issue new shares in the listed group to its new partners, as this could lead to billions of rands flowing out of SA.
“By issuing shares to South Africans you are potentially externalising funds,” an expert on structured finance said on Friday.
“South African funds would leave the country for investment in a foreign company.”
Old Mutual will be the first group in the financial sector with a foreign-listed parent and a number of locally listed and unlisted subsidiaries to sell an empowerment stake.
The transaction, which will be worth about R4,5bn, will include Old Mutual SA’s (Omsa’s) insurance and asset management operations. Omsa’s stakes in banking group Nedcor and short-term insurer Mutual & Federal will also be included.
Old Mutual may decide to go the same route as many other companies with offshore interests and carve out a 10% stake in Omsa. However, this would mean it would no longer control 100% of the local group.
The empowerment partners would also be at a disadvantage as their unlisted shares would not carry the same voting rights as equity in the listed group.
This is the case with Mvelaphanda, which was unable to use its 15% stake in Gold Fields’ local operations to vote on the takeover bid by Harmony Gold.
“Omsa is unlisted, which makes the financing and attractiveness to the empowerment partners lower,” said one analyst.
What would be more attractive to the empowerment partners, and easier for Old Mutual to structure, would be to sell a stake in Old Mutual plc, equivalent to the value of 10% of its South African operations.
Once the partners had paid for their shares, they would be able to trade in the stock more easily. However, according to a Reserve Bank official, one of the conditions of the group’s listing on the London Stock Exchange in 1999 was it could not issue new shares on the South African register without prior approval.
One source said this might have delayed the announcement of the transaction, which was expected at the end of last week. However, Old Mutual said on Thursday the delay was caused by complications arising from the group wanting to include subsidiaries Nedcor and Mutual & Federal in the transaction.
Although voting rights could be granted in some instances when issuing shares in unlisted operations, the structured finance expert said marketability remained a problem.
“But generally you have a ‘step up’ or conversion at some point in time, where the shares in the unlisted group can be swapped for shares in the listed parent.”
Old Mutual could also follow Standard Bank’s lead, and buy shares back from existing shareholders to sell on to its empowerment partners.
Although Old Mutual will only name the empowerment partners when it gives full details of the transaction, it has been speculated that the Congress of South African Trade Unions, staff and a number of empowerment players with ties to Old Mutual are likely to be included.
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