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    More on Sasol Inzalo

    Last week I discussed the Sasol Inzalo black economic empowerment scheme. As mentioned the BEE share allocation of a total of 3% of Sasol’s issued share capital has been split between what they term as a cash option and a funded option.

    Last week I spoke about the cash option, which to summarise, is the offer of unlisted Sasol BEE ordinary shares at R366/share.

    I had a question from someone saying should they sell the Sasol shares that they currently own to buy the Sasol BEE ordinary shares. The answer depends on the investment horizon. If such an investor plans to hold his existing Sasol shares for at least 10 years, then it makes sense to make an application and buy Sasol BEE ordinary unlisted shares at a 23% discount.

    The idea would be to buy so many more Sasol shares because of the discount. If you current own say 500 ordinary shares, then for the current value you could own 650 BEE shares, with the same economic value, just less liquidity. Compound owning 500 or 650 shares and the value after 10 years at 15% annual growth is either R976 000 or R1,25m.

    The more attractive option that Sasol is promoting is the so called funded invitation, whereby participants are funded with the bulk of the cost of buying Sasol shares. Sasol issued Sasol preferred ordinary shares, and has secured funding.

    Here the minimum is 25 Sasol Inzalo shares at a total price of R457,50 i.e. R18,30 for Sasol Inzalo shares. Thereafter the price per share goes up to R36,60.

    The preference share and funding mechanism is quite complex, but essentially provides tremendous leverage on the price of Sasol. The minimum period before restricted trading is allowed is years. After 10 years, the Sasol preferred ordinary shares will automatically be Sasol Ordinary shares and will be listed. There may still be loan debt outstanding and so some Sasol ordinary shares may have to be sold to redeem the outstanding debt and pay any costs.

    The net shares will be distributed to the Sasol Inzalo shareholders in proportion to shareholding at the end of the empowerment period.

    Estimates indicate the 100 Sasol Inzalo shares may translate into between 50 and 60 Sasol ordinary shares at the end of 10 years, depending on the balance of debt still outstanding.

    Information from Robert Cowen and Citi Investment Research indicates that 100 Sasol Inzalo shares bought now at R1830 could translate into a possible 66 ordinary shares after 10 years. Assuming a price at R1400/share – only an 11,4% compounded growth rate in Sasol’s share price, the value could be R92 400!

    This is 50 times the initial outlay - or 48% compounded annual growth.

    Assuming a possible 70 Sasol shares after 10 years and a price of R1800/share, the value for R1830 could be R126 000, or 69 times the initial capital.

    As I mentioned last week someone is paying for the upside. It comes off Sasol’s income statement and through equity dilution. Just the estimated cost of the deal for legal, advisory, structuring etc is R175m.

    All the Black executive and non executive directors are taking up either the cash or funded option.

    The scheme is aimed at BEE. They are also favouring lower income and Black women. It does appear to be an excellent mechanism to assist your loyal Black domestic staff in their pension. I for one will be doing so.

    Sincerely

    Ian
    ian@seedinvestments.co.za
    www.seedinvestments.co.za

    Permalink2008-06-09, 17:46:56, by ian Email , 1 comment
    Trackback address for this post: http://blog.sharenet.co.za/htsrv/trackback.php/800

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    Comment from: Zandile [Visitor] Email
    I would like to know the best time to sell shares?
    PermalinkPermalink 2012-02-01 @ 22:44

    This post has 53 feedbacks awaiting moderation...

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