South African central bank can be liquidated but no provision for nationalisation in its Act..

I had blogged about how the how the South African government is planning to nationalise Central Bank which till date is privately owned.

Prof Jannie Rossouw of University of the Witwatersrand looks at the matter.

He says the shareholders hardly play much role anyways. The central bank policies are mainly run by the Governor and Dep GOvernors who are appointed by the President. The sahreholders can elect 6 of the 13 members and get dividends not more than 10% per annum.

He says nationalisation will require change in the Act. Currently, the Central Bank Act talks about liquidation not nationalisation. Ultimately it all boils down to law:

The nationalisation of the bank will require an amendment to the South African Reserve Bank Act which stipulates the private shareholding. Amendments require a simple majority in parliament.

Nationalisation could therefore happen as soon as legislation is prepared and a bill is passed in parliament.

But the process could become far more complex if nationalisation trampled on some international interests that are anchored in international treaties. At the moment it’s not clear whether or not this is the case.

The other challenge might be around determining the buyout value of the bank’s shares. This is because the South African Reserve Bank Act makes provision for the liquidation of the central bank, but not for its nationalisation.

In the event of liquidation, the legislation prescribes that shareholders should be reimbursed for their shares in terms of a formula based on the trading value of these shares. The shares are traded on an over the counter share trading platform. The last traded price per share was R9,60.

different approach could be to use the share price confirmed by the High Court in dealing with delinquent shareholders. The central bank had to approach the High Court to deal with shareholders who failed to adhere to legal prescriptions in respect of maximum of 10 000 shares held by associated shareholders. In this instance the High Court confirmed a price of R1,55 per share which was calculated by consultant firm KPMG on behalf of the central bank.

These two examples highlight the fact that valuation won’t be a simple matter. Adding to the complexity is the fact that parliament could decide on a completely different value of the shares.



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