While I am not an expert on the equity itself, I hope I know a little about the politics of economic nationalism in South Africa.
The market appears to be assuming that InBev can simply come along and pay cash for the SABMiller shares listed on the JSE, and then have a small portion of non-liquid notionally listed shares on the JSE that don’t trade for five years and are offered at an economically disadvantageous rate – which means local investors, including the Public Investment Corporation (PIC), would go for the cash.
The PIC is objecting, saying it wants to ensure a share listing in South Africa (presumably a liquid, unrestricted float) and that local jobs need to be protected.
The PIC’s power to sway government policy and intervention is key, along with the power it holds itself through its equity ownerships and relationships, and the “guidance” given to local funds.
Sound alarms
It is also important to remember that in South Africa any corporate entity that is changing, especially when it involves an offshore player and ownership is in the equation, will sound alarms in the government and the tripartite alliance.
The main route for “fiddling” here is through the Competition Commission (CC) which comes under the Economic Development Department and minister Ebrahim Patel. He loves what we call “developmental state conditionality”. Anything with the remotest whiff of a (real) competition issue will have to go through the CC, including associate company changes of ownership under SABMiller. This is despite InBev’s small footprint locally.
Here are the key points the government, acting through the CC, will be looking for, and will obstruct until they get it:
* The removal of a “real” listing will be challenged. The CC and JSE will try to ensure there is some real dual listing of liquid traded stock onshore. The exchange control and JSE listing rules can be brought to bear here.
* Job number preservation in South Africa, particularly at a manufacturing level. The CC has in the past wanted detailed assurance on investment levels and local content inclusion, along with jobs. Wider empowerment and BEE issues can also come up, and also union involvement.
* Tax structures will be closely watched by National Treasury, the South African Reserve Bank and the CC, using the exchange control framework and the CC process to ensure tax efficiency from InBev is minimised.
Competition, exchange control and dual listing regulations (SABMiller has been dual listed till now) will all be utilised. A range of options probably exist, given the complexity of SABMiller to act through the holding company, and wholly owned local subsidiaries (South African Breweries) and associates (Coca-Cola South Africa which is already going through Coca-Cola, Distell, Castel) where there are significant SABMiller equity holdings that would transfer offshore to InBev.
The government and the PIC care about local ownership (admittedly only superficially, given the small fraction of SABMiller stock that was floating on the JSE) and the perception of local empowerment and job creation. Local fund managers, including the PIC, may be powerless to stop such a process but the government can get involved.
The government is not afraid of making things difficult for foreign investors – remember it is moving forward with legislation requiring a minimum 50 percent local ownership of securities services companies, and proposing legislation restricting foreign ownership of land.
Can they block a deal? Probably not if it is well-structured, and if InBev gives some concession to the CC or bilaterally. Can they delay it or make it more complicated – quite possibly and this is what I’ve tried to highlight here.
Do not underestimate the ability of government to “fiddle”.
* Peter Attard Montalto is the executive director, senior emerging markets economist and strategist at Nomura International.
** The views expressed here are not necessarily those of Independent Media.
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