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Will MTN achieve the targets it failed at IPO?

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The MTN and Airtel IPOs which have come in the last three years, have both returned an under-subscription. Photo / File 

When MTN first floated the 20 percent offer through an IPO in October 2021, it registered a 40 percent under subscription. 

The offer returned a purchase of 2.9 billion shares worth Shs535.9b, which was below the targeted Shs786.2b from the available 4.5 billion shares the telecom had floated. 

The low return, analysts indicated had resulted from Covid-19-related challenges, which had dampened saving and consumptive expenditure, amid gross uncertainty, growing inflation, and depreciation of the shilling. 

During the time, Covid-19 had buffeted many aspects of the economy and the performance of MTN’s IPO told the story of the wider impact on equity markets and the economy at large. 

It also demonstrated the desire to build a firm exchange market with a strong pull factor to attract enough participants in an economy that invests so little in equities, yet they form some of the most important capital mobilisation platforms.     

Therefore, three years later, MTN has placed a second offer, this time to offload 1.5 billion unsold shares.  

However, what has changed since 2021? 

Save for inflation, which has been rising - but remains below the Bank of Uganda 5 percent target - many market fundamentals have remained the same, even as they offer optimism in both the short and long term. 

The shilling, just like in 2021, has since December 2023 remained volatile depreciating by close to Shs200, and continues to be under pressure due to the exit of offshore investors searching for better returns and rising debt levels. 

Secondly, return on equities has remained volatile and many investors are still reeling from heavy losses experienced in the last three years.  

Thus, the market remains rough and the under-subscription of the Airtel IPO in December last year is also a testimony to this fact.

In November 2023, the IPO Airtel returned a report like MTN’s from its IPO. Airtel indicated that it had sold slightly more than half of the eight billion shares floated on August 30. 

The offer had returned a 45.55 percent under-subscription, and the margins could have been worse had it not been for the National Social Security Fund, which made a last-minute purchase of above 10 percent of the 20 percent offer.  

Airtel reported that it had realised Shs211.4b, which represented a return of 26 percent of the targeted Shs800b. 

Mr Bwiso says the offer has come at the right time, given that the MTN counter remains one of the most active at the USE. Photo / File 

Thus, what are the prospects that could place MTN’s second offer above market dynamics?  

Paul Bwiso, the Uganda Securities Exchange (USE) chief executive officer, believes the offer has come at the right time, given that the MTN counter remains one of the most active at the Exchange. 

“The trading turnover is active and we have seen a lot of interest from not only local investors, but also foreign. The decision was to ensure compliance. But for shareholders, there is a dividend proposal that is on the table for those who will participate,” he said.  

The MTN counter, according to a Capital Markets Authority report for the quarter ended March, has been one of the most active, accounting for 6.75 percent of total turnover at the USE.

However, this was lower than Umeme’s, which in the same period accounted for 88.09 percent.  

Thus, the performance at the exchange gives an insight into how the markets will react, notwithstanding the fact that guidelines under USE, compelled MTN to offload the unsold shares that have since 2021 been held by MTN International, which holds an 83.05 stake in MTN Uganda. 

In March last year, Ms Sylivia Mulinge, the MTN chief executive officer, told shareholders that they were obliged to list the unsold shares through the secondary market. 

On Monday, she said MTN had been generating value for shareholders through improvements in profit and dividend positions. 

Thus, the good returns will be a determining factor in the days to June 10.  

Apart from fully localising all the 20 percent shares, MTN was obliged to complete the entire share sale before December 5, 2024.  

The offer, the numbers show, comes at a time when MTN is in a better position than in 2021. 

The telecom has registered an increase in several fundamentals, boosted by a largely attractive dividend offer and an increase in investment, which not only seeks to meet licensing obligations of achieving coverage of 90 percent of the country by 2025 but opens up new growth opportunities.  

Importantly, the offer provides investors an opportunity - many of whom ‘waited to see’ how the market would hold - to buy into one of Uganda’s most profitable companies with a demonstrable growth potential. 

Since 2021, MTN has returned a dividend of about Shs800b to shareholders, while at the same time, investors, who will invest in the second offer will have an opportunity to share in the 2023 dividend payout, whose book closure has been extended to June 12, two days after the June 10 trading suspension deadline. 

In details contained in its financial statement, MTN indicated in March that investors would receive a dividend of Shs403b for the year ended December 2023, which would give them a dividend return of 10.5 percent. 

The payout, MTN noted, maximised shareholder value, with the Shs403b translating into an 81.7 percent dividend payout. 

Beyond sharing into dividends, investors will also be confident that the MTN share price had firmed at Shs170 after dropping from the IPO price of Shs200 per share, but still has room for an improved performance depending on how the secondary offer performs.  

However, irrespective of its strength, the markets will still have a big contribution on how the offer performs. 

Both USE and Capital Markets Authority have previously conceded that Uganda’s equity markets still face low participation due to various factors, which impact the potential of listed and prospective companies in many ways.  

Equity markets have also been volatile, causing losses to investors and eating into their returns, which remain low compared to other investment vehicles such as treasury bills and bonds.

Worse still, the market has not been able to attract sustainable institutional investors, save for NSSF which has had to save at least all the last three IPOs.  

Therefore, how the second MTN offer performs, will be an insight into how the markets have been holding up and what investors should be hoping for going forward. 

Ms Mulinge believes that the MTN numbers since listing on the USE tell the story of a company with good returns. Photo / File 

Offloading residual shares 

MTN on Monday placed another share sale, the second after the 2021 initial public offering. It comes seven months before the December 5 regulatory deadline.

In November 2021, MTN sold only 13 percent of the 20 percent offered shares, returning an undersubscribed IPO.               

Therefore, as a regulatory requirement, MTN has placed a second offer to offload the 7.03 percent residual shares that remained unsold during the IPO.

The offer is slightly about seven months ahead of the three-year deadline that the Uganda Securities Exchange offered MTN within which it was required to sell the unsold shares.                                                            

A corporate notice on Monday noted that USE had “granted a waiver for the company to list based on the 12.97 percent public float attained in the IPO”. 

The new offer has been priced at Shs170, lower than the IPO Shs200 per share price, which Grace Semakula, the SBG Securities chief executive officer, said is range bound to match MTN’s current stock price movements.  

The offer opened on Monday and will close on June 10 with a target of mobilising at least Shs267.7b from the available 1.5 billion shares. 

The offer, which limits the sale to above 1,400 shares or Shs238,000, is available to Ugandans and international investors but in case of an oversubscription, priority will be given to Ugandans. 

MTN has also discounted the offer by 17.64 percent, which means that for every 140 share sales bought, the investor will get 30 more shares.