SIMON BROWN: I’m chatting with Craig Gradidge from Gradidge-Mahura Investments about Old Mutual’s – I feel it’s known as – Bullet Tesla [Bula Tsela] B-BBEE deal. Craig, admire the time. The deal was introduced final month. It runs till October 24 for individuals to use. What are the form of high-level Ts and Cs?
CRAIG GRADIDGE: Yes, good morning, Simon, and to your listeners. I feel earlier than individuals get too excited, it’s Bula Tsela and never ‘Bullet Tesla’ [chuckling] which may set expectations off in the incorrect route. But sure, a excessive stage. The public are invited to take part in the public ingredient of the deal. There are three components – the employees deal, a group belief and a public deal. The public deal or the public part is shopping for 1.3% of Old Mutual at a price of R10 per Bula Tsela share and that complete Bula Tsela construction will look to boost round R830/R840 million to purchase the shares. So the public are placing in successfully 15% of the fairness. Old Mutual is matching that with some facilitation at 15%, and the remaining 70% will probably be funded by debt, which is being offered by Old Mutual themselves.
The minimal is 100 shares. So it’s a minimal funding of R2 000. For these buyers who can’t afford the R2 000, there’s a scheme the place they’re allocating a sure – I feel – 10% of the deal for small buyers to purchase R1 000 value of shares and pay R100 a month for these shares.
So it’s a reasonably good deal construction. One factor that’s fairly distinctive about it’s that we are able to’t actually say up entrance the worth of Bula Tsela, as a result of the worth at which it buys the Old Mutual shares will not be recognized but. So that’s one space of curiosity. Despite that, it’s nonetheless a reasonably enticing deal.
SIMON BROWN: Yes, the debt part, 70% customary. I think about that’s going to receives a commission down with dividends. There are Ts and Cs. But Old Mutual’s a comparatively steady firm; this isn’t a minor who would possibly nearly go bankrupt sooner or later.
CRAIG GRADIDGE: Well, look, they suspended the dividend in 2008. And then I feel the interim dividend was suspended in 2020 with Covid. So that danger is there, it’s not form of non-existent. There are two examples from simply the final 12 years. But exterior of these two pretty distinctive circumstances, they’ve been an excellent and common payer of dividends.
The deal construction is such that there’ll be between form of 4 and 6 Old Mutual shares behind each one Bula Tsela share, in order that pool of dividends doesn’t should be very excessive to begin consuming into the debt. There will probably be a trickle dividend that’s paid by Bula Tsela to shareholders; 15% after the cost of tax and operational prices will go to shareholders in the type of dividend and the different 85% will then be used to settle debt.
SIMON BROWN: Got you. And there’s a lock-in. As I perceive, it’s 5 years after which they are saying they are going to record on an alternate; it might in all probability be the JSE, however not essentially. But you might be in for the five-year interval.
CRAIG GRADIDGE: Yes. That’s pretty customary – that you’ve a five-year lock-in time period. There’s a 10-year funding time period. Another distinctive function is that they don’t have an outlined empowerment interval. So I feel it offers the board some flexibility to answer situations 10 years from now, after the funding interval is up, to say whether or not they’ll unwind these shares or whether or not the scheme turns into evergreen or no matter the case could also be, or whether or not it must be refinanced – which I feel is intelligent as a result of Sasol, MTN Zakhele and a few the different offers would’ve discovered that form of wiggle room fairly useful. You noticed a few of them having to do new offers [with] truthful restructuring and incurring bills in that. So it’s fairly intelligent in that [respect].
SIMON BROWN: Perhaps studying from others. The precise construction itself sounds nice. I suppose the level – and that is at all times the level – is that you simply solely do that deal when you suppose Old Mutual is an efficient five-year funding. That in the end is the crux of it. The deal is nice; now you’ve acquired to love Old Mutual.
CRAIG GRADIDGE: One hundred %. In African Bank’s deal buyers misplaced the whole lot. In the Media 24 deal you didn’t lose the whole lot, however you bought a reasonably common below-market return. So you’ve acquired to have a view as an investor on the underlying firm. I feel there’s a number of worth inbuilt by way of the construction, so if the Old Mutual share worth remains to be form of R12/13 a share in 10 years’ time, however the dividend has settled sufficient of the debt, buyers may nonetheless make a 200/300% return simply by advantage of the indisputable fact that there’s loads much less debt in the construction in order that fairness part’s a bit greater.
You noticed that with MTN Zakhele, with their first deal, the place I feel buyers made about 150% over the interval, however the MTN share worth was flat. So it was simply the deal construction that had a little bit of worth baked in.
SIMON BROWN: We’ll go away it there. Craig Gradidge of Gradidge-Mahura Investments, I at all times admire the insights.
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