BEE revamp further erodes Group’s Vodacom holding

Vodafone was forced into another tweak to its ownership of Vodacom Group, aimed at easing some of the regulatory risks surrounding the South African business’ broad-based black economic empowerment (BEE) ownership obligations.

The reshuffle — which has not yet received regulatory approval — will see Vodafone give up around a 4%‑slice of Vodacom Group equity, taking its stake down to around 60.5%. However, partly compensating for Vodafone’s reduced position is an expansion of Vodacom Group’s ownership level of the largest OpCo, Vodacom South Africa (VdSA). Vodacom’s 93.75%‑holding in VdSA will rise to 100%, thereby boosting Vodafone’s indirect interest in the OpCo.

• The move follows shortly after a September 2017 reduction of Vodafone’s Vodacom Group stake from 69.7% to 64.5%, to rebalance ownership following Vodacom’s earlier takeover of control of Kenyan associate Safaricom (Vodafonewatch, #156 and #158).

Vodacom seeks credit from bigger, more international BEE scheme

The convoluted dilution of Vodafone’s Vodacom ownership level was made necessary not just by a shift in Vodacom BEE requirements from VdSA to Group level, but also an “enlargement” of its BEE participation.

Vodacom’s announcement suggested that under this revamp, all of its BEE interests, plus a newly-formed staff investment scheme, will be rolled out into a new BEE structure that will end up controlling between 5.8% and 6.25% of the South African Group. This will be consolidated under YeboYethu, its public BEE ownership vehicle. VdSA’s other current BEE partners — Royal Bafokeng Holdings and Thebe Investment Corporation — are said to have agreed to the deal’s terms. The new staff scheme will be funded to the value of ZAR 3.5bn (£199m/€225m) by Vodacom, and own around 20% of the ‘new’ YeboYethu.

The VdSA BEE scheme was coming up to the end of its ten-year lifespan in October 2018 (Vodafonewatch, 2008.08), and Vodacom Chief Executive Shameel Joosub had indicated in May 2018 that a reorganisation was being discussed with BEE stakeholders.

“It was crucial for us to retain our empowerment shareholding but at the same time, go one step further. Our intention was always to move our BEE investors from being shareholders in Vodacom South Africa to a shareholding at the Group level, thereby giving them exposure to the broader local and international markets in which Vodacom Group trades. ” 

Joosub.

One hurdle cleared to a more amenable regulatory environment?

As well as being compelled to update its BEE arrangements by the impending expiry of YeboYethu, Vodacom had strategic motivations.

Vodacom’s BEE ownership levels are closely tied in with a broader, long‑running battle with politicians and regulators around South Africa’s telecoms market structure and spectrum allocation. Airwave-constrained VdSA continues to lobby for greater access to spectrum in South Africa and press concerns over the country’s draft Electronic Communications Amendment Bill, including contentious plans for a wholesale open access network for wireless services (Vodafonewatch, #162 and passim).

Uncertainty over both the Bill and BEE reshuffle appear to have weighed on investor sentiment towards Vodacom in recent months. The Group’s latest Annual Report, published before the BEE revamp was announced, cited concerns over the Bill’s impact on VdSA’s “current business model”, and “potential impacts” of the BEE revamp, as key areas of investor wariness. The Independent Communications Authority of South Africa’s efforts to compel operators to reduce data pricing, following a high-profile social media campaign, and “general political and macroeconomic uncertainty”, were other factors.

BEE obligations impacting partner ecosystem, too

The operator’s accentuation of BEE credentials has implications for Vodacom partners. The Annual Report highlighted that “weighted” spend with BEE-status suppliers rose to ZAR 31.2bn in the twelve months to 31 March 2018, from ZAR 24bn the previous year.