Who qualifies for Old Mutual’s Bula Tsela empowerment shares?

FIFI PETERS: Old Mutual has launched its new Bula Tsela B-BBEE scheme today, finally. [There has been] a whole lot of activity and a whole lot of interest to participate in this scheme.

We received quite a number of questions from our Moneyweb readers, and we’ve got Old Mutual on the show to answer them.

Taskeen Ismail is the head of corporate finance at Old Mutual. Taskeen, I hope you don’t mind that we’re going to keep it really simple, because there has been quite a lot of interest in participating in the actual deal.

TASKEEN ISMAIL: Thank you very much. A very good evening to you and your listeners. Thank you so much for having me.

FIFI PETERS: Sure. Let’s get straight to the many questions we received. I don’t know if we’ll have time to ask all of them, but nonetheless here goes. How does the scheme work? Where can people who are interested buy shares?

TASKEEN ISMAIL: There are three very easy ways to apply.

The first is online. You can visit the website singularfs.co.za.

The second is to call our call centre on 087 015 0395.

And the third is to use our walk-in branches. We have seven branches throughout the country. If you walk into any one of those seven branches, there should be somebody there to help you complete your application. The list of those branches you can find on the Old Mutual website.

FIFI PETERS: Is there an age cut-off for applicants?

TASKEEN ISMAIL: Applications are open to all black South Africans in the country. There’s been quite a bit of interest by moms and grandparents and dads to apply to buy shares for their kids and for their grandkids.

FIFI PETERS: Documents? Supporting documents that applicants will need to prepare?

TASKEEN ISMAIL: There will be quite a bit of supporting documentation that you’ll need to supply as part of your application, including things like ID documents. Essentially those are for us to verify that you are a black South African. The full list of documents is on the website, Singular Financial Services – singularfs.co.za.

FIFI PETERS: And then will applicants be able to buy the shares on investment platforms like EasyEquities? My friends tried to today and they couldn’t do so. I’d like to understand if eventually they will be able to do so.

TASKEEN ISMAIL: For now the applications are being processed on the singularfs platform. Eventually by year five of our transaction – this entire deal has a 10-year time frame – by year five we’re going to be listing the retail scheme on a B-BBEE exchange. The second those shares are listed, you then have liquidity. Anybody who’s invested at that point can then dispose of those shares via that exchange to another black South African. Anybody who hasn’t invested in the Bula Tsela shares is enabled to buy into those shares via that same exchange.

FIFI PETERS: It sounds like it’s better, though, to have direct exposure and to buy as of today, which people can do because the scheme has now launched.

TASKEEN ISMAIL: When you say ‘direct exposure’, do you mean waiting until year five to buy via the exchange?

FIFI PETERS: No. I mean going on your website and buying today as opposed to waiting for five years.

TASKEEN ISMAIL: Yes. The rationale for the facilitation behind the scheme is we are trying to make it as easy as possible for as many people in the country [as possible] to apply for these shares.

The way the applications will work is you can apply for a minimum of 200 shares that will cost you R10 each, so you need to put R2 000 together. You pay that together with your application.

But we do know that there are loads of people who can’t afford to pay R2 000 up front, so we are earmarking 10% of our scheme for those individuals, and we are allowing them to buy half the number of shares.

So they need to come up with only R1 000, but they don’t only come up with R1 000 up front. They can come up with R100 today and they have the next 12 months to settle the remainder. But that kind of facilitation is only available during the application process.

FIFI PETERS: Which started today.

TASKEEN ISMAIL: Yes. It starts today. It’s open for two months. Applications will close on October 24 [2022].

FIFI PETERS: And how many shares in total has Old Mutual made available for the Bula Tsela scheme?

TASKEEN ISMAIL: In total our Bula Tsela scheme comprises three components. We have the retail scheme, which is what we’ve been talking about. We’ve got the community scheme, which is a scheme for the broader community, and then we’ve got our employee share scheme, which is for Old Mutual employees. In total, Old Mutual will be issuing just north of 205 million new shares across each of these three elements.

FIFI PETERS: Another question. Will the shares being issued dilute the shares of existing shareholders in any way?

TASKEEN ISMAIL: There will be some dilution. The exact dilution will be known only when the scheme winds up at the end of 10 years. But, besides the dilution impact, what we would also see is extra business coming into the group.

FIFI PETERS: All right. I think you answered this in terms of will Old Mutual list the Bula Tsela share separately. You said in around five years’ time they’ll be made available to list on a B-BBEE platform, correct?

TASKEEN ISMAIL: Yes. We haven’t selected the exact exchange yet. We’ll see what the best exchange would be cost-wise versus liquidity-wise at the time. But we will be listing the retail scheme by year five.

FIFI PETERS: Who will have the right to trade the Bula Tsela shares, and what controls will Old Mutual put in place in this regard? This you have already partly answered in the sense that you haven’t chosen the platform that these shares will be listed on, but I don’t know if you have a comment regarding the controls that may be put in place.

TASKEEN ISMAIL: The only control that would be in place would be the rules of that specific exchange. Those exchanges do have slightly different rules, depending on the exchange that you’re looking at. The biggest rule would be to try and maintain the B-BBEE credentials of the scheme. Any disposals would need to be to other black South Africans via that exchange.

FIFI PETERS: Would Bula Tsela shareholders get the same dividends as existing shareholders?

TASKEEN ISMAIL: The way the B-BBEE scheme is structured is we’ve created a Retail Co, which will own about 60-odd million Old Mutual shares. This Retail Co is the company that each of our retail scheme applicants is applying for shares in.

So what will happen in Retail Co is, because it’s owning Old Mutual shares, whenever Old Mutual declares a dividend, there are dividends coming into that company. That company will have a bit of cost to settle – audit fees, running costs. There will be some debt attached to the scheme.

Whatever net profit is left over, that Retail Co board will then declare a dividend to its shareholders, being all of our retail scheme applicants.

FIFI PETERS: And then how will voting rights for the Bula Tsela scheme work?

TASKEEN ISMAIL: All applicants are actually awarded shares on implementation of the scheme. Besides having dividend rights they also have voting rights. So they’ll be allowed to vote at general meetings, annual general meetings, whenever there’s a decision required by Retail Co. They will be a normal shareholder of Retail Co.

FIFI PETERS: Taskeen, day one being today, you as Old Mutual have been building up quite strongly towards this. I think you’ve been very open with the information on your website. You’ve published it on Sens for the public to see and read and really become familiar with what you were bringing to market. In your view, and from what you have heard so far today, how has the scheme been received?

TASKEEN ISMAIL: There has been quite a bit of interest in the lead up to the launch of the application process, interest coming from shareholders, from government, from all of our key stakeholders – more on the design of the scheme and how broad-based we are actually going.

Everyone has been quite pleased that we are going as broad-based as we are, and that we are spending quite a bit of time and effort in making room for individuals who don’t normally get access to these schemes.

We have a huge marketing launch happening today, but other than that there’ve been loads of questions from the general public on how they get involved, how they can get involved in the 10% element which allows them a pay-off process, who gets to qualify, can they buy shares for kids? So there is quite a bit of interest already.

FIFI PETERS: And I suppose they can buy shares for kids.

TASKEEN ISMAIL: Yes, you are allowed to buy shares for your kids, for your grandkids, as long as they are black South Africans.

FIFI PETERS: A bit of a twist here. If you are a white parent right now who has adopted a black child, would your adopted child qualify?

TASKEEN ISMAIL: Yes, because the end recipient of that share is a black South African.

FIFI PETERS: And just lastly, as Old Mutual, how do you envision the scheme, just speaking to empowerment and also financial inclusion, as it were, particularly for disadvantaged communities?

TASKEEN ISMAIL: It’s 100% geared for both of those principles.

So the entire design of this retail scheme has been geared to try and get people who wouldn’t normally be investing in share schemes like this into the equity-ownership market.

Besides the launch of the Bula Tsela retail scheme itself, we’ve got a massive financial education plan that we’ll be rolling out to try and educate all of our applicants and those who eventually get awarded shares to get them used to what it means to own an equity share, to get them used to the concept of a dividend, the concept of a voting right.

And we’re hoping that, coupled with our retail scheme, that does actually mean that the level of transformation and benefit of the scheme is multiplied over the next 10 years.

FIFI PETERS: All right. Taskeen, thanks so much for taking all the questions from our readers. We’ll leave it there. Taskeen Ismail is the head of corporate finance at Old Mutual.