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JSE NBKP
NBKP
NBKP - Nedbank - Potential effects of proposed tax changes on preference shares
NEDBANK LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1951/000009/06
JSE share code: NBKP
ISIN: ZAE000043667
("Nedbank" or the "Company")
POTENTIAL EFFECTS OF THE PROPOSED CHANGES IN SECONDARY TAX ON COMPANIES AND THE
TAXATION OF DIVIDENDS ON PERPETUAL NON-CUMULATIVE, NON-REDEEMABLE NEDBANK
PREFERENCE SHARES ("NEDBANK PREFERENCE SHARES")
1. Introduction
In the 2007 budget speech the Honourable Minister of Finance announced the
phasing out of secondary taxation on companies ("STC") and the introduction of a
withholding tax on all company distributions, including dividends. This
announcement sets out Nedbank`s view of the potential effects of these proposals
on an investor holding Nedbank preference shares.
2. Effects of the phasing out of STC and the introduction of the taxation of
dividends
The phasing out of STC and the introduction of the taxation of dividends is
expected to be done in two stages.
The first stage, which will become effective on 1 October 2007, sees the
reduction in the rate of STC on all dividends from 12,5% to 10%.
The second stage, which is proposed for 2008 once Government has amended certain
double tax agreements, will see the replacement of STC with a 10% dividend tax
at shareholder level.
The proposed amendments will shift the tax obligation from Nedbank to the
preference shareholder by replacing STC (which the Company pays) with a tax at
preference shareholder level (with the preference shareholder paying tax on the
receipt of dividends).
In practice, the tax at preference shareholder level is proposed to be withheld
by the company paying the dividend and the preference shareholder will receive
the dividend net of tax.
The impact of the proposed amendments is that, if the dividend on a preference
share is not adjusted by the effect of the shareholder tax, the preference
shareholder would receive a dividend (net of tax) of a lesser amount than they
currently receive tax free.
It is the view of our legal advisors that the Articles of Association
("Articles") do not cater specifically for the change envisaged to the current
STC regime.
3. Proposed amendments to the terms of the Nedbank preference shares
Nedbank intends to propose amendments with the objective of effecting changes to
its Articles once the new tax legislation is finalised to ensure an equitable
result for the preference shareholders.
In essence, the Company will propose grossing up the preference share dividend.
The gross up will be the lower of the benefit the Company will gain as a result
of the abolition of STC or a sufficient increase in the preference share
dividend such that the preference shareholders receive the same dividend after
tax as they currently receive, immediately after the introduction of the
withholding tax.
The proposed amendments to the terms of the Nedbank preference shares will
require board approval, the passing of the required special resolution/s by the
members of the Company (including a separate Nedbank preference shareholders
meeting as their rights will be directly affected), as well as possible
regulatory approval once the amendments have been promulgated.
4. Amendments subject to final regulations/legislation
The commencement of the required process, as set out in paragraph 3 above, and
the final terms and conditions of the proposed changes are subject to the final
regulations/legislation being published by Government in the coming months
confirming our interpretation of the 2007 budget speech as outlined above.
5. Further announcements
The Company will endeavour to keep preference shareholders and the market
informed of developments relating to this issue.
For further information, please contact:
Markus Borner, Group Capital Management
Tel: +27 (0)11 295 8616
e-mail: markusb@nedbank.co.za
Mike Brown, Chief Financial Officer
Tel: +27 (0)11 294 9999
e-mail: mikeb@nedbank.co.za
Sandton
1 March 2007
Investment bank, arrangers and joint sponsor:
Nedbank Capital, a division of Nedbank
Lead sponsor:
Investec Bank Limited
Date: 01/03/2007 16:34:05 Produced by the JSE SENS Department.
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