MONEYWEB, BY BRUCE WHITFIELD, 21 SEPTEMBER 2001

BROADCAST TRANSCRIPT: Professor Matthew Lester: Rhodes University. Residence-based taxation has been introduced to South Africa and what it means is that you now need to declare your global assets and pay tax for them here. Thousands of South African have assets offshore. Some of them legally, no doubt many of them illegally as well. Professor Matthew Lester, he’s a tax professor at Rhodes University in Grahamstown. It does just about sum up the principle of residence-based taxation, doesn’t it?

MATTHEW LESTER: Yes, well up to now we’ve been living in isolation. Part of the whole game of regenerating the South African tax system is to bring us in line with worldwide systems which tax you on your worldwide assets. There’s nothing new about this. It’s just something that South Africa’s had to catch up on. There are major developments, however, in it. We’ve got all this legislation, but effectively this legislation doesn’t work unless the taxpayer owns up to doing it.

MONEYWEB: That is an issue that we can get onto in just a moment … you do have a great description for people who over the years have smuggled cash out as travel allowances or in their shoes or in their suitcases. You call it EVKOM.

MATTHEW LESTER: Yes, well in the old South Africa that used to stand for the Elektrisiteits Versending Komitee. In South Africa, now, today, it stands for Ek Vat Kontant Oorsee Meneer. I’m taking my money overseas.

MONEYWEB: People have been doing this for years. A lot of South Africans may very well have cash in offshore tax havens, but those offshore tax havens, following the events of the past week or so, probably aren’t as secure as they once were?

MATTHEW LESTER: Yes, this is also nothing new. In recent years tax havens have come under considerable pressure. Because of international crime syndicates and drug trafficking. But what we’ve got is suddenly a situation that the World Trade Centre gets blown up last week, and if you’re going to stop international terrorism with this new campaign of operation Infinite Justice, it’s not only about firing missiles into Afghanistan. It’s also about locating the funding devices used by international terrorism.

MONEYWEB: And they could very well be using offshore tax havens to keep …

MATTHEW LESTER: They probably are. What the offshore haven offers, is both a low tax rate and a complete client confidentiality. In other words, a nominee arrangement. And what they’re going to have to do to break into this and international terrorism … they’re going to have to bring in new regulations which could lead to the disclosure of the ultimate beneficiary of these funds.

MONEYWEB: And that in turn could mean that Trevor Manuel may very well be able to find out exactly how much money South Africans have stashed in these places?

MATTHEW LESTER: Yes, not far behind the guys looking for international terrorists, will be the guys looking for international tax evaders. They’ll be benefiting from the same system. Now there’s been a worldwide call for this for many years because about a third of the world’s wealth is held through the tax havens. And the OECD, that’s basically the association for paying high tax rates, is saying, well, there’s not much we can do while a third of the world’s wealth is hidden in tax havens, and we need to access this wealth.

MONEYWEB: And for South Africans a lot of alarm bells will be ringing. You’ll have a lot of people sitting at home in cold sweats right now. A couple of people have probably driven into trees, concerned about the impact on their taxes. Is there any chance that the South African government, under these circumstances, could consider some kind of amnesty?

MATTHEW LESTER: I’ve been calling for amnesty or some sort of an arrangement whereby people can come clean for some time. This is the obvious way. I think people need a lot of that wealth back here today because it’s become a very expensive place to live, here in South Africa. So there are a lot of people who would like to bring quite a lot of it home, but they don’t know how to come clean, because there isn’t a procedure to come clean. There is nothing contained in the Income Tax Act. It’s still recognised as widespread tax evasion. So if you can’t tell somebody how to come clean, then they won’t. The problem is that if you ask for an amnesty and you open this whole issue of amnesties again, then you’re opening amnesties for murder, etc. etc. etc. simply because you want to sort out the offshore money. That’s the reason why there’s a hedge to looking into this problem, because we open up the whole amnesty debate. However, at the end of the day, it would make very good business sense for us to legitimise offshore money. I think there are a lot of South Africans who would rather pay their tax on that money abroad, keep it abroad legitimately, but stay on the right side of the law, because this is an ancient form of tax planning that is now internationally not acceptable.

MONEYWEB: Is there scope at the moment … could the South African Revenue Service, do you think, cope with what would be an influx of tax debts?

MATTHEW LESTER: SARS could cope with it. The problem is not SARS itself, it’s the legislation for SARS to operate within the law to accept this money without going back and digging up a horrendous past.

MONEYWEB: Is this in any way even under discussion at the moment within government?

MATTHEW LESTER: I think it’s been thought about, yes. In the debates leading up to RBT legislation, this was brought up. The problem with it is that we needed the legislation very urgently in South Africa, and this was a detail that was probably passed by. I think, though, that with events of last week on the RBT front we maybe need to reconsider it very quickly. Otherwise things could become embarrassing for all concerned and there won’t be any winners.

MONEYWEB: What would it involve, do you think, to actually get the legislation changed?

MATTHEW LESTER: It would take number one, recognition of the fact that South Africans have used tax havens abroad for the last 100 years since Paul Kruger ditched out of the country with all his cash. And saying, right, if you’ve got this money abroad you may legitimise it, this will be the taxation implication, number one, whatever that might be cast in stone, and number two, these will be the implications for exchange control purposes, because inasmuch as some of these things can be a tax violation, they are also an exchange control violation.

MONEYWEB: But at the same time the only way that is going to happen is that if there is an amnesty because …?

MATTHEW LESTER: It might not be a total amnesty. In discussions that I’ve had with people about it, they say listen maybe we’ll take a levy on it. Let’s say the cost of coming clean is 10% or 15%. There are people who are prepared to pay that. Because right now they can’t even get that wealth back into South Africa with out it being detected by the [indistinct] system, that you’ve suddenly had a major incoming deposit from a tax haven.

MONEYWEB: Rhodes University tax professor, Mathew Lester, with some very interesting thoughts on the implications of the fact that tax havens may very well soon be a thing of the past. International governments have been trying for years to find sufficient excuses to get rid of them, and the twin tower attacks in New York and the Pentagon attack in the United States may very well provide a catalyst for those to disappear. The tax implications for South Africans are huge but, Arthur Buchner, there must be an extraordinary amount of South African wealth sitting in tax havens. It would be enormously good for the country to have it legalised and have it come back?

ARTHUR BUCHNER: 100%. The problem is there’s a lot of people in the country who would actually like to swop their money for that money coming back inside. At current rand exchange rates, the rand is ridiculously oversold and I think a lot of people would like to come and bring their money in.

MONEYWEB: I’m very happy that you’re still here with us, Arthur, because Clive Simpkins our regular communications specialist is incommunicado at the moment. So it gives us an opportunity just to explore a couple of extra things in terms of the markets. If we do have a look at what happened on our markets today, we did speak earlier about the fact that there was the futures closeout yesterday and also the derivative traders in the market taking advantage of a lot of negativity in the market. But what did strike me is Investec last week buying back its shares at R184. It announced that it bought back about 3.5% of its issued share capital. And announced that it still intended to do the same. We saw Investec today down 5% to R153.80. Yet still no sign from Investec that it is buying back those shares. Do you think that this is a sign that Investec is watching the share price and thinking it might go lower and we might get a better deal on our own company?

ARTHUR BUCHNER: I do think so, but if I look at companies that are looking at share buybacks, my view is write puts on your own stock. So sell …

MONEYWEB: Write puts on your own stock? Sorry, explain that.

ARTHUR BUCHNER: That means go and sell puts. Sell someone the ability to sell your stock if it is at a lower price. So you get a premium income in, and if the stock is lower than today and it is exercised, you by nature have to take it from them, but if it rallies you get the premium income which you can put on your income statement. So rather than buy back shares, let someone else be the front runner and, say, we don’t think your share is going up anymore. It’s a far better way to actually purchase shares back.

MONEYWEB, BY BRUCE WHITFIELD, 21 SEPTEMBER 2001

BROADCAST TRANSCRIPT. Well, the JSE certainly battled today. And it’s time for the global market report with John Clemmow at Investec in London. John, it’s been a dreadful, dreadful week here. How are you feeling after the markets in London?

JOHN CLEMMOW: It’s been interesting. The last couple of hours have been very interesting. At one stage I think there was a sense of almost capitulation taking place in European markets today. The DAX is off nearly 7.5%, the CAC was off 6.5% and the FTSE was off 6.5%. New York opened pretty badly and then clawed its way back. We saw the Dow nearly managing to trade flat for the day. It’s subsequently started weakening again and the Dow is currently off 2.6%. But the result was that the FTSE actually closed only, if I can use the phrase, only down 2.2%. And this is quite interesting because the South African dual-listeds staged a fairly dramatic revival once the South African market had closed. I’m sure your listeners will be interested in some of these things. For example, Didata closed here in London at 68p which is off just a quarter of a pence. Which equates, at the current exchange rate to R8.68, as opposed to the R7.94 it closed at in South Africa. That’s a big gap. Anglo American was at an equivalent price of R88.60 as opposed to the R87.90. SAB R53.49 as opposed to R52.50 and Old Mutual at R12.67 as opposed to the R12.20. So it was quite a recovery in the dual-listed stocks and, indeed, most of the markets in Europe in the last portion of trading. Now, as I said, the US started to recover principally because GE gave out some very decent guidance, and there were some quite strong rumours of a possible emergency rate cuts that were going to take place possibly today. It’s now starting to weaken again, and I think the real reason for that is the expectation that something is going to happen over this weekend in a military and political sense is quite high, and nobody wants to be that long over the weekend.

MONEYWEB: It is interesting that you do point out that our South African dual-listed shares have strengthened because they did have an horrendous day with, as I said to Arthur Buchner a moment ago, the likes of Dimension Data and Old Mutual touching new lows. Even South African Breweries today down to R52.50. Did that have any sort of recovery towards the end?

JOHN CLEMMOW: Yes, as I said South African Breweries did recover.

MONEYWEB: I beg your pardon, yes.

JOHN CLEMMOW: South African Breweries did recover and close at about R53.49. Yes, look it was interesting that the weakness in South Africa, in the South African stocks, didn’t manifest itself later on in London. But that was part of a broader trend. As I said, the FTSE at one stage was off 6.5% and it closed off just 2.2%. So, yes, there was a recovery as we saw the improvement in Wall Street. But I’m afraid I have to concur with your previous commentator that we are seeing futures expiry ahead of what looks like to be fairly serious military action. We’re seeing a jumpy world and we’re seeing people, particularly in New York, who are still scarred by the events that took place. Funerals are starting and it’s not generally a terribly happy period and, of course, there is another event which is going to take place next week which is going to make trading, certainly in New York, quite thin, and that’s Yom Kippur.

MONEYWEB: Is there anybody brave enough to call a bottom in the market at the moment, or is everybody just too cautious?

JOHN CLEMMOW: Oh, plenty people brave enough to call a bottom. The question is whether they’re right or not.

MONEYWEB: Would you call a bottom in this one?

JOHN CLEMMOW: What I would say is that the reaction on equity prices has largely been driven by some elements, I think, of forced selling. Certainly, if you look at the patterns that are emerging, particularly in New York, you notice that there seems to be a sort of a three o’clock rally that tends to take place most days. And that’s after the pension funds, sorry not the pension funds, the life insurers and the general assurers, who are assumed to have been liquidating positions to raise cash for the claims they’re going to be facing, come out of the market. There’s also, which we saw yesterday, there was Bill Bass of the Bass family who was a forced seller on margin of a huge chunk of Disney shares. So there are elements of forced selling taking place. No if’s no but’s. European insurers, American insurers, are selling and there are certain wealthy individuals, quite a few I believe, who are also in that position. When you are selling into a thinly traded market and an area of panic, prices can certainly overshoot. So although I think we at Investec would not say that prices can’t go down any further, we would say that we are in areas of outstanding value in a number of categories across the board. So that although, given the technical circumstances, you might see the market going lower, you are in fantastic value territory.

MONEYWEB: John Clemmow from Investec London. Thank you very much. Arthur, I saw you nodding your head as John was talking about the forced selling aspects. Clearly, is it something that’s happening here as well?

ARTHUR BUCHNER: It’s definitely happening here. Guys are having money pulled out of their unit trusts. People are liquidating. They’re looking at a recessionary environment, and they’re saying we want our money in cash – and so the unit trusts are forced sellers.

MONEYWEB: But nice to see that our dual-listed companies, Didata, Anglo, SAB, Old Mutual, all of those picking up towards the close in London. It’s almost a pity that we’ve got a public holiday here on Monday.

ARTHUR BUCHNER: Well I take the other view. We had the Dow futures down about 486 points, and the Dow will more than likely close down today. Which means that we can expect a rally on Monday, so when we come in on Tuesday we can benefit from that. I think ahead of a weekend people are very scared, and I cannot see the Dow rallying ahead of the weekend with any threat of violence.

MONEYWEB: That is Arthur Buchner from BOE and before that you had John Clemmow from Investec London. We certainly look forward to seeing what happens on the market on Tuesday morning.

MONEYWEB, BY ALEC HOGG, 12 SEPTEMBER 2001

Early morning activity on the South African equity futures market suggests the JSE could lose as much as 8% of its value at the opening in the aftermath of concerns following yesterday’s terrorist attack in New York.

Early action in futures suggests the JSE’s key Alsi-40 Index, which tracks the performance of the 40 most valuable stocks listed on the market, should start the day at least 550 points (7%) down on last night’s close of 7 948 ? with the more pessimistic projections suggesting a decline to below 7 200 (almost 10%).

The September Future on the JSE’s Alsi-40 Index kicked off at 7 500 , but lost 100 points in the first few minutes in thin trading, down only slightly from last night’s close of 7 480. As the Futures Exchange closes half an hour later than the JSE, there was enough time for it to absorb the initial financial panic from the terrorist attack with the All Share futures ending 8,3% down on the day with Industrial Futures 10,5% off.

The 4pm close on the JSE ensured that yesterday at least, losses on the spot market were modest with JSE All Share down 198 points (2,3%) to 8 459; the Industrial Index lost almost 4% and Financials off 4,6%. Futures trader Arthur Buchner of BOE Securities estimates that the decline is likely to be around 8% but he expects shares to bounce back strongly in later trade.

Mercury’s Gavin Betty, however, is concerned that there could be further weakness today if the JSE spot market is hit by panic selling: “If you get an 8% to 10% drop in the spot market, we might see that spilling over to futures with the downward spiral feeding on itself. But at least for now, the market has held up very well,” he said ahead of the JSE’s opening.

MONEYWEB, BY BRUCE WHITFIELD, 3 AUGUST 2001

Johannesburg — MONEYWEB: Over now to Arthur Buchner at BoE Securities. Arthur, the top forty shares on the JSE up 7% this week. Is it a fair reflection of the market, or has it really been driven by just a couple of shares?

ARTHUR BUCHNER: Bruce, we saw a lot of buying in the resources which looked to actually be short covering by futures close. In fact yesterday, looking at the volume, we reckon 25% of the actual daily volume on the JSE was as a result of futurues arbitrages buying the market.

MONEYWEB: What about Richemont, because Richemont has seen some fairly heavy volumes this week as well?

ARTHUR BUCHNER: Richemont makes up between 29 and 30% of the industrial index, and every rand move in Richemont equates to about 12 point moves on the actual underlying index. And we’ve seen it rally ten points. So that’s 120 points, which is quite a large portion of that whole movement. The rest of the market actually some of the stocks lagged and were actually down on the week.

MONEYWEB; So really, that 7% gain might be just a little bit deceptive?

ARTHUR BUCHNER: 100%. Very deceptive, and even today, the market was down, whereas Richemont was up, showing that the broader market was down quite considerably.

MONEYWEB: Banking shares under huge pressure today. Perhaps not a big surprise that we saw Nedcor down 4% after those results yesterday?

ARTHUR BUCHNER: I think two analysts have down graded Nedcor, they haven’t down graded it to say sell it, but our analysts came out today and said they are down grading it from a buy to an accumulate. It sounds funny to say, if it’s not a buy, it’s not an accumulate, but an ad says buy into weakness, you don’t have to go out and take out all the offers. And we do know of another broker who also came out with a similar prediction.

MONEYWEB: The Nedcor share price at the moment at about R144 a share if I’ve got it right. Where is weakness? At what point should people be looking to buy into Nedcor?

ARTHUR BUCHNER: We don’t have an exact price. It was just a buy into weakness. They were down R6 today. So I would say from now you could start to accumulate and don’t throw all your money at it, but look at different levels, similar to stuff like M-Cell, which came down R2 in the beginning of the week and actually rallied the full R2. If you weren’t buying into weakness, you wouldn’t have got any benefit out of the stock. It’s hard to pick a bottom, but we definitely see value in the share, we just don’t see huge upside momentum.

MONEYWEB: So certainly small shareholders should watch the market very, very closely before buying into those companies. Most of the banking shares down today. Is it a case of the market looking at Nedor, worrying perhaps that the other banks may not be able to sustain those 25% earnings that we’ve become used to?

ARTHUR BUCHNER: Yes, I would think so, but we must also remember that with the arbitragers buying on Wednesday and Thursday, those banks make up quite a fair portion of the all-share and they did get moved up on the back of that arbitrage buying, and I think just some profit taking from the movements yesterday and Wednesday.

MONEYWEB: And Absa breaking through R40 this week. It’s succeeded in staying above that level. Do you think we are going to see it staying above there for much longer.

ARTHUR BUCHNER: I actually like Absa, we’ve seen it test R37 on a number of occasions, hasn’t been able to break through it and we also saw a technical break on the upside, and I don’t see too much downside at the moment on it.

MONEYWEB: New highs for Sanlam and First Rand as well which goes against the other financial services companies. What are they doing that nobody else seems to be getting right?

ARTHUR BUCHNER: I wouldn’t be able to tell you.

MONEYWEB: Profurn results. They were up today. Gavin Walker will talk to us just now. What did your guys make of those numbers?

ARTHUR BUCHNER: Sidney Venello is quite highly rated in the sector, and he came out and said that he believed that Profurn were at fair value at current. But he would recommend a sell anywhere above 73, 74c, with a buy at round about 55c. The interesting thing with Profurn today is that it traded a low of 65 and a high of 71, that’s almost a 10% movement. So if you were a jobber in the market, someone who was actively speculating, you could have literally made quite a lot of money buying on the lows and selling on the highs. He also came out and said that he believed that they could trade themselves out of the current problems that they are faced with if they looked at selected assets and sold them off. One of them is the Australian operation which they had a turnover of over a hundred milllion, yet they are losing a million rand a month.

MONEYWEB: That’s an interesting perspective on that, because I think Profurn’s NAV at the moment, around R1.73 and Sidney Venello saying that realistic value right now, around 67c?

ARTHUR BUCHNER: He also came out and he said that Profurn have recognised that the true value of the Zimbabwe investment is not what it is perceived to be. On the good side, they did bring down their stock quite a bit, but he thinks there’s a two year consolidation period whereby management aren’t going to continue with what they wanted to do, which was to go for high growth and they’ve just got to consolidated. And he says that when they are consolidating, it’s not going to run away.

MONEYWEB: Didata, the news today that it’s falling out of the FTSE 100. The share all the way down to R13.70 today, but seems to be stabilising around R14, R15?

ARTHUR BUCHNER: I think we saw some opportunistic traders this morning actually trying to knock it down, and you must also remember that index trackers are very dynamic. As the share price falls, we have to sell out a number of our stock, due to the fact that it has a smaller percentage in the index. So as Didata has been falling, these index trackers have had to sell. Their holdings in Didata cannot be as much as what they had at R60. Their holdings must be minimal, I don’t even think they are going to have that much of an affect on the share price.

MONEYWEB: That is something that we will be talking to Donald Rogan to later on. That was Arthur Buchner at BoE Securities, and some interesting perspectives on Profurn.

BUSINESS DAY, BY LUKANYO MNYANDA, 18 MAY 2001

Johannesburg — In a first for South Africa markets, BoE Securities said yesterday it would lodge a claim against the JSE Securities Exchange SA after the JSE reversed trades in Dimension Data warrants earlier this week. BoE, which was forced to reverse a purchase of the warrants on Monday, said it was likely to lodge a monetary claim. This claim would possibly be a percentage of the profit it would have made if the deal was allowed to stand.

BoE’s head of derivatives, Arthur Buchner, said the sum involved was relatively modest and that the firm was challenging the stock exchange on a matter of principle. JSE senior adviser (surveillance) Peter Redman said he did not believe that BoE had a case. He was not aware of an impending claim and as far as he knew, “they don’t have right to appeal”.

The controversy that surrounds correction trades emerged earlier this week when some brokers apparently missed an announcement by Deutsche Bank that it was consolidating Dimension Data warrants (1DDT). Despite announcements on the JSE’s stock exchange news service and in the press last week, the brokers failed to adjust their trades. They continued to sell unconsolidated warrants to parties that thought they were buying the new version.

This resulted in 14-million warrants being sold, though only 2- million were in issue. The JSE eventually reversed the trades on Monday, to the irritation of a number of brokers who believe the system needs to be reviewed to make a distinction between honest mistakes and acts of negligence.

Buchner said the stock exchange was also at fault because its broker-dealing accounting system failed to keep up with the consolidation. “By Friday it had still not been picked up and we bought only on Monday. We believe the JSE has been inefficient in this case,” Buchner said.

He said it was unfair that brokers who made mistakes were subject to fines, while the JSE could cover its own mistakes by simply reversing trades. “It’s a one-way street at the moment and there is no justice.” Other traders said the system of correcting trades was applied unfairly and could be used to hide negligent behaviour. “People make mistakes and those should be corrected. But negligence, where brokers fail to follow what is happening in the market, is another story,” SG Securities warrants head Gizelde Brady said.

Some felt the same principles were not applied to everybody. Buchner said BoE had had a similar experience about three years ago with an unbundling exercise in which it was caught on the wrong side of a trade that resulted in a R250000 loss that was not reversed.