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How Airtel profited from sale of stake in its Ugandan unit
Airtel investors paid a premium for its shares more than the price on its books, due to confidence in its high-growth channels such as Airtel Money. Photo / Edgar R Batte
What you need to know:
- Beyond the Shs211b earned from selling shares during the 2023 IPO, Airtel also made a “paper gain” of $49m (Shs179b)
The business world gets really interesting when a company grows so big that it shares part of itself with the public - through a stock exchange.
That is how big companies like Apple, Tesla, and Amazon became what they are: they opened themselves up to investors.
In Uganda and other developing countries, the same idea is taking shape.
If you have built a good, well-run, and profitable company, chances are that investors - or even government - will want a piece of it.
That is exactly what happened with Airtel Uganda.
In 2023, Airtel, as a requirement of the law, floated 20 percent of its shares to be taken up by Ugandans as part of measures to keep some of the profits from big foreign-owned companies here.
Thus, in August 2023, Bharti Airtel offered a 20 percent stake in the Ugandan subsidiary, equivalent to 8 billion shares, hoping to raise Shs800b.
But things didn’t go exactly as planned.
By November 2023, it had only managed to sell 4.6 billion shares - just 54.45 percent of the offer, which raised Shs211.4b – far less than the targeted Shs800b.
But even with such an off-target return, Airtel came out ahead, at least according to details contained in its 2024 annual report.
How?
Airtel’s parent company - new Airtel Africa financial filings show - reported a net asset gain of $49m (Shs179b) when it sold just 10.89 percent of Airtel Uganda’s shares.
Why? Because investors paid more for the shares than what they were worth on paper.
So even though the sale didn’t hit full target, it still boosted Airtel Africa’s financials.
This gain wasn’t from selling airtime or data - it was from selling part of the business to investors who believed in its future.
The gain also told the market something important: investors see potential in Airtel.
One of the biggest promises Airtel Uganda put in its prospectus was its dividend policy of distributing 90 percent of the net profits it makes in a particular period, on top of quarterly payment of dividends.
National Social Security Fund (NSSF) bought the biggest chunk, spending Shs199b for a 10.55 percent stake of the 10.89 percent taken up by investors.
That made NSSF the second-largest shareholder after the Indian parent company, Bharti Airtel.
So even with fewer shares sold than expected, Airtel Uganda made gains.
The tug of war & the win
In the final stretch before closing its initial public offering (IPO) in November 2023, Airtel pulled all the stops to attract investors.
It doubled incentive shares, which effectively lowered the share price - institutional investors were getting shares at around Shs47, while retail investors got them at Shs71, down from the original Shs100.
Still, investors were not entirely convinced.
Some felt the IPO was overpriced. Others said the timing was off and liquidity was thin on the ground.
However, there were also some red flags in the form of high debt levels, which could have worried some more cautious investors.
So, while the IPO was technically successful, with over 50 percent of the shares taken up, it barely crossed the line.
And this wasn’t just about Airtel, it is a bigger picture that tells the story of NSSF becoming the white knight in Uganda’s capital markets
For the last three major listings - Cipla Quality Chemicals, MTN, and Airtel - it’s been NSSF stepping in to save the day.
Other institutional investors have been shying away from the stock market due to falling prices, low liquidity, and a lack of variety in listed companies. But that risk-taking from NSSF has paid off, with the Fund raking in big revenues from dividends, becoming the fastest-growing income stream in its portfolio.
The surprise gain
Despite the IPO’s tough journey, Airtel got a pleasant surprise when the accountants went back and ran the numbers.
Beyond the Shs211b raised, there was a “paper gain” of $49m (Shs179b).
This wasn’t a profit from selling airtime or data. It was a technical accounting gain, based on International Financial Reporting Standards (IFRS).
How does this work?
Airtel Africa (the parent company) didn’t sell all of Airtel Uganda - it only sold a part to minority shareholders.
Under IFRS 10, such a sale triggers a revaluation of the remaining shares, not through the profit-and-loss account, but directly in equity.
Think of it like owning land. You sell a piece of it at a much higher price than what you had it valued for. Suddenly, the land you still own is now worth more, because the market has spoken.
That is what happened. The shares Bharti Airtel sold were valued higher than what was recorded in their books, so they had to adjust the value of their remaining stake upward. The $49m gain was the result.
So that meant that Bharti Airtel didn’t just walk away with cash. It also walked away with a richer-looking balance sheet, showing confidence from investors and an uplift in the value of Airtel Uganda.
In short, Airtel went through a maze to get listed. But at the end of it, it raised money, kept their regulatory promises, brought local investors on board, and came out with a valuable accounting win.
Short-changed shareholders?
Not quite. Some might wonder if minority shareholders got the short end of the stick during Airtel Uganda’s IPO, given the mouth-watering Bharti Airtel “paper gain”.
But a closer look shows otherwise. Book value is not the same as market value.
Book value measures the value of a company based on historical costs, depreciation, and conservative assumptions.
It often lags far behind what a company is actually worth in the eyes of the market, especially in fast-moving, high-growth sectors like telecoms.
Take Airtel Uganda. Its 2024 financials show that the telecom had Shs143b in equity and 40 billion outstanding shares, which gives it a book value of Shs3.55 per share.
But on the Uganda Securities Exchange, shares were trading at Shs85 apiece by close of trading yesterday, over 24 times more than the book value.
This gives a price-to-book ratio of 23.94, which is remarkably high but signals investor optimism around future earnings, brand strength, market dominance, and reliable cash flows.
It also reflects the scarcity of investable stocks on the USE, which drives up prices for the few gems available.
Were the shares overvalued?
Of course, such a high price-to-book ratio can spark debate of overvaluation, and if in the future profits don’t live up to the hype, the stock could be vulnerable.
But in this case, the high valuation mirrors real investor demand, not artificial inflation.
Investors willingly bought in at the floated price, suggesting a strong belief in Airtel Uganda’s long-term prospects.
The proceeds from the sale can help Bharti Airtel pay down debt, reinvest in growth, or return value through dividends or share buybacks.
Also worth noting: Bharti Airtel only offloaded 10.89 percent of its stake.
It didn’t exit entirely, nor did it dump shares at a premium without justification. Instead, it used the IPO to unlock value, fulfil regulatory requirements, and retain control.
