| SENS Note - 22 August 2016 |
| MTN - BEE announcement |
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Since its incorporation in South Africa in 1994, MTN has been at the forefront of empowerment and remains fully committed to the principles of broad-based black economic empowerment (“BEE”). MTN also embraces the principles of BEE enshrined in the Codes of Good Practice on Broad-Based Black Economic Empowerment (“Codes”) and relevant industry transformation charters. A key pillar of BEE is black equity ownership. In 2010, MTN implemented a BEE transaction (“MTN Zakhele BEE Transaction”) in terms of which, inter alia, (i) MTN Zakhele (RF) Ltd. (“MTN Zakhele”), a special purpose vehicle, issued MTN Zakhele ordinary shares (“MTN Zakhele Shares”) to qualifying members of the black public; and (ii) MTN Zakhele acquired and/or subscribed for MTN ordinary shares (“MTN Shares”) at a discount, up to a maximum of 4% of the then issued share capital of MTN (using a combination of equity funding, vendor facilitation through a donation from MTN, notional vendor finance from MTN and third-party preference share funding (“MTN Zakhele Pref Shares”)). The MTN Zakhele BEE Transaction is proposed to be unwound on 24 November 2016 (“MTN Zakhele Unwind”) when the MTN Zakhele Pref Shares and the notional vendor finance mature, through either the structured unwinding of MTN Zakhele (i) in the event that the 2016 MTN BEE Transaction is implemented (“MTN Zakhele Integrated Unwind”) or (ii) in the event that the 2016 MTN BEE Transaction is not implemented (“MTN Zakhele Standalone Unwind”). Following the MTN Zakhele Unwind, MTN is required intends to maintain core BEE targets as set out in the Information and Communication Technology Sector Code (“ICT Charter”) in relation to its South African businesses by proposing and implementing the new BEE transaction outlined in this announcement (“2016 MTN BEE Transaction” or “Transaction”) together with the MTN Zakhele Integrated Unwind. The MTN Zakhele Integrated Unwind is thus, for reasons set out in paragraph 3.1 below, inextricably linked to the proposed 2016 MTN BEE Transaction. If, however, the 2016 MTN BEE Transaction is for any reason not implemented at the time of the MTN Zakhele Unwind (whether it be due to the non-fulfilment of any of the conditions precedent to the Transaction (“Transaction Conditions Precedent”), or otherwise), then MTN Zakhele proposes to implement the MTN Zakhele Standalone Unwind. The 2016 MTN BEE Transaction is designed to offer the opportunity for long-term, sustainable benefits to the participants in the 2016 MTN BEE Transaction (“Black Participants”) during its proposed eight year duration (“Empowerment Period”). It is sized to ensure that, together with the continuing contribution of the MTN Zakhele BEE Transaction, if fully subscribed, it immediately translates to an effective indirect black ownership in excess of 30% of MTN's South African operations under relevant industry transformation charters. In addition to the 2016 MTN BEE Transaction, the MTN board of directors (“MTN Board”) proposes to establish a new employee share ownership plan (“2016 ESOP”) for the benefit of eligible MTN employees. Pursuant to the implementation of the 2016 ESOP, MTN will issue, in total, approximately 0.1% of its current fully diluted issued ordinary share capital (excluding the repurchase described in paragraph 3.2 below) to be held in a trust for the benefit of eligible MTN employees (pending vesting). Management and directors of MTN will not participate in the 2016 ESOP. MTN Zakhele Specific Repurchase The specific repurchase of MTN Shares by MTN from MTN Zakhele (“MTN Zakhele Specific Repurchase”) is an integral part of the 2016 MTN BEE Transaction and is also one of the conditions to the third party funding of the 2016 MTN BEE Transaction. The MTN Zakhele Specific Repurchase will only occur if the 2016 MTN BEE Transaction proceeds. Under the agreement governing the MTN Zakhele Specific Repurchase, MTN will repurchase from MTN Zakhele such number of MTN Shares (“MTN Repurchase Shares”) at the Repurchase Share Price that will (i) enable MTN Zakhele to redeem the MTN Zakhele Pref Shares and pay or provide for other specified unwinding liabilities (settled in cash (“Repurchase Cash”)); and (ii) in the event the MTN Zakhele Unwinding Scheme and the 2016 MTN BEE Transaction proceed, facilitate the MTN Zakhele Re-investment (settled on loan account (“MTN Loan Claim”)). The number of MTN Shares repurchased for the MTN Loan Claim (“Repurchase Loan Shares”) will depend on the extent to which MTN Zakhele Shareholders elect the Re-investment Option, and on the levels of allocations made in respect thereof. The maximum aggregate number of MTN Repurchase Shares is 44,068,683 MTN Shares, representing approximately 2.4% of MTN's present fully diluted share capital (excluding the MTN Zakhele Specific Repurchase). MTN Zakhele Futhi Public Offer and the MTN Zakhele Re-investment Offer MTN intends to implement the proposed 2016 MTN BEE Transaction, through MTN Zakhele Futhi, by means of the following core elements: (i) a public offering in terms of which black participants will be invited to subscribe for and beneficially own MTN Zakhele Futhi Ordinary Shares, subject to the qualification criteria set out in the prospectus to be published on or about 12 September 2016 (“Prospectus”) in respect of the offer (“MTN Zakhele Futhi Public Offer”); (ii) the MTN Zakhele Re-investment Offer, if the MTN Zakhele Unwinding Scheme proceeds; (iii) MTN Zakhele Futhi raising third party finance through the issue of preference shares (“MTN Zakhele Futhi Pref Shares”); (iv) MTN providing MTN Zakhele Futhi with funding and vendor facilitation through, among others, notional vendor finance and the transaction discount provided by it; and (v) the subscription for MTN Shares by MTN Zakhele Futhi using the funding raised through these sources. (The MTN Zakhele Futhi Public Offer and the MTN Zakhele Re-investment Offer are, together, the “MTN Zakhele Futhi Offer”). The scheme is structured as an 8 year scheme, with the initial shareholders being locked-in for 3 years, following which the shareholders may trade among other members of the black public. The 2016 MTN BEE Transaction is sized to ensure that, if fully subscribed and together with the continuing contribution of the MTN Zakhele BEE Transaction, it translates to an effective indirect black ownership in excess of 30% of MTN's South African operations under relevant industry transformation charters. It may be scaled down should public subscriptions under the MTN Zakhele Futhi Public Offer and/or the number of MTN Zakhele Shares in respect of which MTN Zakhele Shareholders elect the Re-investment Option not be sufficient. To the extent that the aggregate equity raised from (i) the black public in the MTN Zakhele Futhi Public Offer; and (ii) the level of the MTN Zakhele Re-investment under the MTN Zakhele Re-investment Offer is less than R1,234.1 million (representing an approximate 2% shareholding in MTN), the 2016 MTN BEE Transaction will not be implemented. The MTN Share price at which the 2016 MTN BEE Transaction will be implemented is a 20% discount to the 10 day VWAP per MTN Share to 17 August 2016 of R128.50 (“Transaction Share Price”) i.e. R102.80. MTN Zakhele Futhi Public Offer The black public (including members of the black public participating via the MTN Zakhele Re- investment Offer) could ultimately have an economic interest in up to approximately 4% of MTN’s issued ordinary share capital on a fully diluted basis (excluding the MTN Zakhele Specific Repurchase) through their holding of MTN Zakhele Futhi Ordinary Shares through the MTN Zakhele Futhi Offer. It is anticipated that the MTN Zakhele Futhi Offer will be launched on or about 12 September 2016. The Prospectus, containing the details of the MTN Zakhele Futhi Public Offer, will be made available at participating Nedbank branches and MTN stores around South Africa to members of the black public who wish to participate. Presently, the MTN Zakhele Futhi Offer is expected to close on or about 21 October 2016, with a period of approximately 4 weeks thereafter to finalise the allocations. Only “black people” (or comparable term), as defined from time to time under relevant BEE legislation, and “black groups” (being black majority owned and majority controlled companies or entities) (collectively, “Black Public”) are eligible to participate in the MTN Zakhele Futhi Offer (“Black Participants”). Participants who are found to have misrepresented their BEE status or otherwise fail to qualify as part of the Black Public (or commit other material defaults during the Empowerment Period) may, at MTN's election, be forced to sell their MTN Zakhele Futhi Ordinary Shares to MTN, or persons identified by it, at a potentially significantly discounted price. In addition, Black Participants who are found to have misrepresented their BEE status may be guilty of a criminal offence (fraud). Salient dates
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