Government’s direct and indirect stake in Telkom appears to have dropped to below 50% for the first time since it warehoused and then sold most of a stake to the Elephant Consortium and Wiphold in a 2005 black economic empowerment transaction.

Based on public disclosures by the Public Investment Corp (PIC) on its proxy voting record, its shareholding in the telecommunications operator (on behalf of the Government Employees’ Pension Fund) dropped to 7,7185% as at the date of Telkom’s most recent AGM, August 2016.

Previously, it had been above the 10,5% mark for the past decade meaning that, when pooled with government’s direct stake, they would account for more than 50% of votes.

The 39,76% stake directly held by the department of telecoms & postal services on behalf of government has not changed materially since Telkom’s listing on the JSE and the New York Stock Exchange in 2003 (it was slightly lower than 39% in 2007, seemingly from a change in the number of shares in issue, but has been above 38% since the listing in 2003).

Holding more than 50% of the votes (on a combined basis) had never been an issue until 2011, when government’s golden share (via a class A shareholding) entitled it to “a reservation of certain rights in the control of Telkom”. According to the telecoms department, this included the rights to “appoint a specific number of directors and an entitlement to veto certain decisions”. This expired upon the eighth anniversary of the group’s listing.

The PIC’s holding, as disclosed by Telkom in its annual reports to the end of March for each year, shows how its interest in the operator has changed over time:

2007: 15,27%
2008: 15,23% (8,9% through wholly-owned subsidiary Black Ginger 33, the class B shareholder, remainder as class A)
2009: 15,62% (8,95% through wholly-owned subsidiary Black Ginger 33, the class B shareholder, remainder as class A)
2010: 12,9% (8,9% through wholly-owned subsidiary Black Ginger 33, the class B shareholder, remainder as class A)
2011: 10,89%
2012: 10,54%
2013: 11,66%
2014: 13,48%
2015: 12,01%
2016: 11,41%

These data points (at fixed points in time) ought to be reconciled with the holdings as disclosed in the PIC’s published proxy voting record:

16 September 2009: 17.556%
2010: Proxy voting record not available
2011: Proxy voting record not available
24 October 2012: Proxy voting record not available
27 September 2013: 11,5684%
27 August 2014: 12,991%
26 August 2015: 11,93%
24 August 2016: 7,7185%

This means that, if the 7,7185% as disclosed is indeed correct, the PIC’s holding dropped below 10,25% (the threshold to ensure 50,01% of votes if pooled with government’s stake) between 31 March 2016 and 24 August 2016 (the date of Telkom’s AGM).

Telkom’s annual report will be published in July and if the PIC’s drop below 10% is permanent, this will be disclosed in the shareholding information notes to the annual financial statements. Its AGM is scheduled for 24 August 2017.

There are more questions than answers about this drop below 50%. Does the PIC see better value elsewhere on the market? Does government think it no longer necessary to control the majority of the voting rights in this state-owned company? Has its holding increased back above the 10,25% level since last year’s Telkom AGM?

It is worth noting that government (the telecoms department — formerly the department of communications) has had a largely hands-off approach since the appointment of and successful turnaround under CEO Sipho Maseko. There has also been a lengthy (and noticeable) period of board stability under chairman Jabu Mabuza since his appointment in 2012.

The dividend flow to government via its directly held stake is important, with the telecoms department stating in its 2016 annual report that “departmental revenue comprises mainly of dividends received from Telkom and Vodacom”. Prior to the sale of the Vodacom shares in 2015/2016, this dividend flow totalled approximately R1,5bn-R1,6bn/year.

In the 2016 financial year, for example, Telkom’s dividend of R2,70 netted the telecoms department R559m (for its holding of 207m shares). This (obviously) reduces the pull on the fiscus for funding.

The following questions sent to the PIC’s senior specialist for investor relations on 23 February (with a follow-up on 28 February) have remained unanswered:

Is the PIC’s 7,7185% holding disclosed at the time of the AGM correct?
Are you able to share when this shareholding changed (it is obviously since the end of Telkom’s financial year in March 2016)?
Are you able to confirm the current shareholding in Telkom?

A similar set of questions was sent to Telkom’s company secretary on 22 March, with no response yet received.

Update: An independent third-party has confirmed that, as at end-February, the PIC held 12,16% in Telkom. This was via the Government Employees’ Pension Fund (11,87%) and Unemployment Insurance Fund (0,29%)