No shares traded in Sasol Inzalo on day of listing

Could it have something to do with the company’s debt level?

JOHANNESBURG – The traditional blowing of the Kudu’s horn at the JSE was followed by somewhat of an anti-climax, as no shares were traded when Sasol Inzalo Public Limited (SIPL) listed on Tuesday.

The company, which owns 2.4% of Sasol Group’s issued share capital, became the second empowerment share scheme, behind MTN Zakhele, to list since the stock exchange’s listing requirements were altered to accommodate entities migrating from over-the-counter (OTC) trading platforms. This followed a directive from the Financial Services Board (FSB) that all trading of shares must be conducted on an exchange that is licensed under the Financial Markets Act.

However, none of the company’s 200 000-plus shareholders had traded a single share by midday, keeping the last traded price at R45.12 per share, which was on October 19 before OTC trading was suspended.

“It could be the offer price,” said Craig Gradidge, investment and retirement specialist at Gradidge-Mahura Investments. “It may be that nobody is willing to sell at that price. Alternatively it could be an administrative issue. There are a number of forms that one has to fill out in order to be able to trade in Sasol Inzalo, which are different from the other empowerment shares.”

Zero shares traded by 2pm on day of listing

Sasol

Source: Moneyweb

Trading under the share code SIPBEE, SIPL is Sasol’s second empowerment share scheme to list on the JSE after its BEE Ordinary Shares (SOLBE1) were listed in 2012. It has more than 16 million shares in issue at a presumed market cap of about R724 million. 

“There are different circumstances with each company,” said Chris Sturgess from the JSE’s capital markets division. “In some there is a lot of interest, in others there is less interest. Also bear in mind that in the empowerment sector, you have to pre-qualify. It’s not as if any existing investor known to the JSE can simply jump in. It can also be a matter of the existing shareholders being unfamiliar with trading on this platform, and that will take time.”

If the issue is a lack of interest, it could perhaps be explained by the significant debt profile of the company. Unlike the BEE ordinary share scheme, which allowed previously disadvantaged individual to buy Sasol ordinary shares at a discount, SIPL borrowed money from Sasol and banks to fund a large portion of the shares and, as such, the scheme presents a greater risk than its counterpart. For the year ended June 2015, SIPL’s liabilities outweighed its assets by R150 million.

Gradidge said that, while such heavy gearing can favour a share scheme, it was too risky for his liking. This is particularly because the underlying asset, Sasol, has a volatile share price. The combination of heavy gearing and share price volatility means that, while one could make a very good return on investment, an investor could also lose all their money because that debt keeps increasing and the value of the assets can be drowned out by the debt on the balance sheet.

Said Gradidge: “When they did the [SPIL] deal, it was between 90-95% debt funded when it was launched…I initially invested in Inzalo, but I opted out about two years ago and invested in the discounted scheme because I wasn’t comfortable with the level of risk.

“Right now I think Sasol Inzalo is too expensive [at the last traded price]. People are paying too much for what they’re getting. But, on the other hand, it’s a volatile enough share to grow into that valuation.”

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Its not really clear to me as an Inzalo shareholder how to now trade this share. The change over with MTNZ from OTC to the JSE was seamless, a simple re-registration process that could be completed online and you could start trading. On the Inzalo website there is no useful information… there is a computershare email address and a call centre number to contact for information. More details on the website would be very useful to Inzalo shareholders.

End of comments.

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