It is late as I sit to write this blog. I’ve had a busy day, a sick child, drama at work, traffic and my inbox is full of questions from MTN Zakhele (MTNZ) shareholders. I’ve also had two big glasses of wine! I want to sleep but my bloody conscious is having none of it. I left the comfort of a corporate salary early 2008 because I could see investment opportunities passing my friends and family by. These opportunities were largely public BBBEE share offers. They were not well covered in the media back then, and people were getting poor advice around these schemes. This motivated Kagisho (my business partner) and I to start our practice, Gradidge-Mahura Investments, so we could fill this gap, and inspire others to do so as well. This is what woke me up, this and another query from a desperate and confused MTNZ shareholder. MTNZ is down 5.75% today, and down from over R65 a share less than a month ago, causing some serious stress among investors. So here goes.
There are two types of MTNZ shareholders; those who bought when the scheme was launched in 2010, and those who bought after it listed early 2014. I will deal with these separately. All MTNZ shareholders have to make a decision; rollover their holding into MTN Zakhele Futhi (MTNZF), take MTN shares, take cash (the default option if you do not submit the necessary paperwork to undertake one of the other options), or do a combination of the three options. To get MTN shares one needs to hold at least 200 MTNZ shares, and to convert to MTNZF one needs at least 50 MTNZ shares.
The drop in the price of MTNZ is causing all shareholders quite a bit of stress. It is important to state upfront, whatever decision an MTNZ shareholder takes, it will be done at the NAV of MTNZ, and not the share price of MTNZ on the last day of trading. The NAV of MTNZ is closer to R60 than it is to the R53.17 that it is trading on. This is about an 11% discount to NAV which is high for a deal that matures next month. This clearly demonstrates significant concern on the part of MTNZ shareholders.
Those who bought at launch
Investors that bought when MTNZ was launched in 2010 paid R20 a share for their stake. The share is up about 175% since then. Not a bad performance for a 6 year period that saw the MTN share price largely flat over the same period. These investors have been invested for 6 years now and are faced with more decisions than the public that do not own MTNZ shares. Cash, MTN, MTNZF or a combination? Here are some considerations;
- Take the cash if you will need the cash in the next year or two
- Take MTN shares if you may need cash in less than 3 years, or if you need dividend income
- Rollover to MTNZF if you still have a long term horizon for these funds
- Consider a combination if you have more than 250 MTNZ shares based on your requirements, and if you have no clear need for the funds, or if you have short, medium and long term requirements for those funds
Those who bought in 2014 and 2015
A number of queries I’ve been getting are from people that bought MTNZ after they started trading in 2014. These people largely paid between R90 and R120 per MTNZ share, and their investment is now deeply out of the money (i.e. in a deep loss making position). It is important that these investors remember that share investing requires an investor take a long term horizon, 5 years at the minimum. Therefore, many of these shareholders have been holding these shares for 2 years or less. For these investors, the most sensible option would be to rollover to MTNZF in order to give the investment enough of a chance. Do not expect sympathy from me – I lost a big sum of money in ABIL’s two schemes. Investing means that the investor is taking on risk, and sometimes that risk may materialise causing losses.
Taking MTN shares would be the next best thing as this would at least result in the investor gaining from dividend flow while waiting for the recovery. Taking cash would result in the investor realising what is a paper loss today.
My final advice to investors is consistent with advice I given to people in the past. Do not stress about making the best decision, rather focus on your decision making process and ensure that it is sound. This way you are clear in your mind about what decision you need to take, that works for you, so that you can make the right decision. Do not beat yourself up when another option works out better than the one that you took, especially if the decision you took was the right one for your particular set of circumstances.
MTNZF could be the next Phuthuma Nathi or the next ABIL. I do not know how it will pan out. However, I am comfortable that many of the issues that the company currently faces will be a thing of the past in the next 8 years. I also know that MTN did not perform well but still caused MTNZ shareholders to make a solid return. For this reason I am going to invest some of my hard earned money there.