Reader’s Forum: Minority shareholders are economic hostages
JOHANNESBURG – Ryk de Klerk’s article in Business Report on September 23 regarding Airports Company South Africa (Acsa) and its minorities refers.
De Klerk’s attempt to portray the minority shareholders as “Cannibalistic Capitalists” is unjustified, ill-founded and ought to be dismissed in toto.
There are no cannibals. Minority shareholders are economic hostages who have been captured by the state.
The government enticed minorities to buy Acsa shares in 1998, promising a full privatisation and listing of Acsa on a stock exchange initial public offering (IPO).
Minorities (4.2 percent shareholding) and Aeroporti di Roma (AdR, 20 percent) paid R991 million in cash to buy Acsa shares from the government, at R8.19 each (18 times 1998 earnings and 3.2 times net asset value or NAV). Minorities used funds borrowed from institutions and retirement funds.
The poorest of the poor are not affected at all by the minorities’ actions.
Since 1993, the government hasn't invested a cent into Acsa and provides no debt guarantees.
When the government reneged on its privatisation promise, it got the Public Investment Corporation (PIC) pensioners to buy out AdR’s shareholding in Acsa at R16.75 a share in December 2005.
If anything, it is the government's very own conduct that affects the “poorest of the poor”.
Since 2011 minorities’ attempts to sell their shares back to Acsa, which they are entitled to do, at fair value, were frustrated by the government and Acsa, with Acsa making a cheeky offer of R12.87 a share in August 2014 (half the 2014 audited net asset value).
The government never offered to buy the minorities’ shares and R22 a share was never offered.
The Minister of Transport’s permission is required for any Acsa share sale, and minorities are not party to any shareholders agreement.
Out of frustration, and as a result of the government refusing to engage the minorities on this point, in 2015 minorities approached the courts for relief under the minority protections in the Companies Act, requiring Acsa to buy their shares back at fair value.
De Klerk is correct, value has been created in Acsa, but it has been denied to minority shareholders.
Oppression by the government includes reneging on the privatisation/IPO of Acsa and diverting its commercial mandate to a developmental one. For example, the government forced Acsa to build King Shaka Airport at a cost of R10 billion, using borrowings, which has destroyed shareholder value. In 2019, after nine years of operations, King Shaka made a R10m profit – how can it ever pay back a loan of R10bn?
In August 2017, Acsa, with the government's consent, and minorities reached a settlement agreement, which was made an order of court, requiring an independent valuator to value the minorities’ shares by excluding minority/liquidity discounts and negative consequences of oppressive conduct.
Acsa and the minorities subsequently agreed on the appointment of an independent valuator. The resulting valuation of R78 a share reflects the opportunity cost to government (and the poorest of the poor) of not privatising Acsa and allowing it to be run commercially.
The valuation price: earnings and NAV multiples are reasonably comparable to those paid in 1998.
In bad faith, the government has now tried to set aside the court order with Acsa, challenging the R78 a share valuation.
On October 30 the government's appeal will be heard in court and, thereafter, Acsa’s valuation challenge. If this is how the government treats Acsa shareholders in more than 21 years, what hope do we have of encouraging foreigners to invest in state-owned enterprises like Eskom?
The scorecard after 21 years: The government received R991m cash in 1998 (valued at R8bn today); PIC pensioners paid AdR R1.7bn in 2005, and the minorities (including pension funds) who paid R172m in 1998 remain economic hostages after 21 years.
Government -1 / Minorities - 0.
No cannibals here.
Alun Frost is adviser to oppressed Acsa Minority.