WhyistheCostofCapitalsohighinSouthAfrica.pptVIP

How has South Africa Inc sought to reduce its high Cost of Capital? ;Conventional Wisdom uprooted;What is the Cost of Capital for SA Inc today?;The Cost of Capital Defined;Why is the WACC so important?;Q: Why debt is usually cheaper than equity? A: Because of tax. The debt part of WACC is calculated as follows: ((risk free rate + lending margin) x (1 - tax rate)) ;The Key Variables in determining a Cost of Capital;What has SA Inc done about SA’s high cost of capital?;The Two Sides of the Price of Risk:Corporate Supply and Institutional Demand;Critically, this hurdle rate is the price of capital determined where: the supply of risk i.e. those investment activities undertaken by the company meets: the demand for risk i.e. what investors in debt and equity capital are willing to pay to buy access to those cashflows;Stage 1: Anglo when its head listing was in Johannesburg;Stage 2: Anglo moves head-listing to London;Stage 3: Anglo’s move complete;The Proof of the Pudding;The Errunza-Miller StudyDecember 2000;Why would London have a higher risk tolerance?;How moving Anglo’s head listing increased its valuation;What are the consequences of this for developing nations?;Suggestions for further investigation;Appendices: ‘Real World’ Ramifications of this Insight;Appendix 1: Why Anglo pays more for Amplats than most South Africans can;Appendix 2: Cazenove’s Auction of a Zambian business worldwide;Appendix 3: It works for South Africans too! MTN in Nigeria;Appendix 4: How South African Breweries ‘bought’ a 7.5% cost of capital;Appendix 5: How much of the South African market affected by this issue?