South Africa: BAT Favour Just Delays Inevitable

Source from:  Business Day 05/25/2010

Johannesburg - THE decision by the finance ministry to grant British American Tobacco (BAT) shareholders an extra 24 months to realign their portfolios is welcome, but the problem is it merely delays the ministry grasping the nettle. What it tells us, however, is that the ministry is planning to do precisely that within a shortish time period, and this will have significant implications for almost all shareholders, not just those who own BAT. The root of the problem lies in an extremely arbitrary definition of which companies are considered "local" and which are considered "foreign" in terms of exchange control regulations. BAT is considered a "foreign company", and yet Richemont, which is listed in Switzerland and which earns less than 1% of its income in SA, is considered "local". Because these companies were largely "grandfathered" into a new situation, local investors in large companies are very exposed to international economics even if they don't explicitly invest their foreign allowances in foreign instruments directly. In theory, that should improve diversity and reduce volatility. The classification didn't matter much until BAT, now the largest stock tradable on the JSE by market capitalisation, came lumbering on to the scene. BAT is now so large that it throws a spanner in the spokes of the pre-existing classifications. Interestingly, BAT said the postponement takes place pending the Treasury's review of the current policy on inward listings and the finalisation of the prudential regulatory framework for foreign exposure by institutional investors in SA. That means this review will probably take place within two years. Enditem