JOHANNESBURG - MTN Zakhele Futhi (MTNZF) is in talks with MTN to avert a liquidity crunch after the telecom operator parked its interim dividend for the six months ended June in a bid to preserve cash.
MTNZF told shareholders yesterday that its only asset and material investment and asset consisted of MTN shares and due to MTN, Africa's mobile giant, not paying a dividend, its liquidity would be impacted.
“The fact that MTN has stated that it will not be paying an interim dividend impacts MTNZFs liquidity and, hence, its ability to pay scheduled preference dividends. MTNZF is entering into discussions with MTN and the preference share funders to find solutions to mitigate the impact,” MTNZF said.
MTNZF said the full impact was currently being determined and this might have a material effect on the price of its ordinary shares. It advised shareholders to exercise caution when dealing with the share until a full announcement was made.
In a trading update released on Friday, MTN announced that it had parked its interim dividend for the six months to June due to uncertainties emanating from the Covid-19 pandemic. The suspension of the group’s dividends came as MTN’s African markets were weighing on short-term investor sentiment.
MTNZF was set up in 2016 as a vehicle for qualifying black South Africans to invest in MTN and holds 4 percent in MTN. The company's financial performance is based entirely on MTN’s share price and any dividend declared and received from MTN during the year. The company debuted on the JSE in November last year.
Wayne McCurrie, an analyst at First National Bank, Wealth and Investments, said MTN had not announced an interim dividend, so MTNZF could not pay its funders.
“Virtually all BEE (black economic empowerment) schemes rely on the dividend to pay funders so there will be many cases where BEE schemes can't service debt. Debt providers will ask for more security,” said McCurrie. Abdul Davids, the head of research at Kagiso Asset Management, said the Covid-19 pandemic would weigh heavily on BEE schemes, including MTN Zakhele, which relied on dividend receipts to fund interest and capital repayment commitments on the loans.
“Most of the BEE schemes used debt facilities to purchase the initial equity stakes with the BEE shareholders only providing a fraction of the equity at the inception of these schemes. As such Covid-19 will have a material impact on both the servicing of the loans as well as the value of the equity backing the loan,” said Davids.
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