YeboYethu: a simple B-BBEE structure that works


YeboYethu: a simple B-BBEE structure that works


Published Date: 2021-11-30 | Source: INCE|Community | Author: The Finance Ghost

YeboYethu: a simple B-BBEE structure that works

Vodacom's listed empowerment structure has released interim results for the six months to September 2021. Much like the telecoms company in which it holds shares, YeboYethu keeps things simple.

MTN is the wild child in the sector that has chased risky growth in Africa and its B-BBEE structure reflects that culture as well. Vodacom is rather boring by comparison, which isn't always a bad thing for investors.

There aren't any exotic derivatives in YeboYethu that would raise the eyebrows of experienced investors. Instead, there's a significant holding in Vodacom Group (the listed group's shares rather than those of a subsidiary) and a funding structure that has two classes of preference shares.

This means that YeboYethu is a leveraged play on Vodacom, as there is debt within the structure already. Although Vodacom is the only investment in the structure, the effect of leverage means that the Vodacom and YeboYethu share prices don't necessarily track each other closely. A further distortion is that YeboYethu is far less liquid than Vodacom, which limits price discovery and drives a structural discount in the price to the company's fair value.

YeboYethu's share price is up over 42% year-to-date while Vodacom is up just 8.7% over the same period. An environment of low interest rates and the flow-through of dividends from Vodacom has enabled the structure to decrease its debt and funding costs.

There's still a juicy dividend coming from Vodacom into YeboYethu that will fund a further reduction of debt of nearly R412 million. With the recent interest rate hike, it will be important for YeboYethu shareholders that the debt keeps dropping as the structure heads towards eventual maturity in 2028.


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