JOHANNESBURG – Telkom investors have snubbed the board’s request for a general authority in the issuance of shares in the telecoms company for cash on the grounds the move could dilute existing shareholding structure.
The shareholders told the company’s annual general meeting the request would affect the group’s current flat share price.
The resolution failed to garner enough support.
The investors instead passed all other resolutions presented.
Board chairperson Sello Moloko told investors the resolution had been passed annually but had not been activated for many years.
“Although the board does not expect to issue any shares this year, we have taken a view to increasing the threshold to provide the board with agility and flexibility to enable an effective post-Covid-19 response should that be necessary,” Moloko said. “We are therefore requesting an increase in the threshold from 5 percent to 10 percent.”
Moloko said increasing the threshold was not an indication the group planned to issue shares.
“The increase of the threshold in the resolutions is not an expression of Telkom’s intention to issue shares to the market.”
Last month, Telkom issued its AGM notice in which it said it was beneficial for its directors to attain the authority. It said the directors considered it beneficial to obtain the authority to enable the company to take advantage of any business opportunity that may arise in futur.
Telkom, which is 40 percent state-owned and whose business units include BCX, Gyro, and Openserve, has tumbled 30.53 percent on the JSE during the year to date.
Head of equities at Mergence Investment Managers Peter Takaendesa said the market expected the resolution to fail because investors were jittery.
He said the bid failed despite Telkom’s assurances.
“Telkom recently issued a Sens (Stock Exchange News Service) to investors assuring them there are no plans to issue shares but investors are still not comfortable with granting that authority without a clear rationale provided for the request,” Takaendesa said, adding the request for authority for significant and unsubstantiated share issuances would not be unique to Telkom in the current environment given the significant declines in share prices of many domestic stocks.
“For companies with strong balance sheets and sound business models, we believe investors prefer those companies to buy back their own shares rather than issue share to acquire or use cash to acquire other companies,” said Takaendesa.
However, investors were likely to remain supportive of share issuances where there is a clearly communicated and accretive investment opportunity.
“Telkom will still be able to approach investors through an extraordinary general meeting if there is a great opportunity on the table at a later stage,” he said.