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MTN Uganda stock: Hope, concerns live side by side 

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MTN Towers on Hannington Road in Kampala. The telecom sold 2.9 billion shares at Shs535.94 billion on its 2021 IPO, despite being undersubscribed by 35 percent. PHOTO/FILE

MTN Uganda has completed listing 20 percent of its shares on the stock exchange ahead of the December deadline, as mandated by the company’s communications and stock market regulators, new data from stock market broker, Crested Capital, shows.

This follows the telco’s two-week secondary offer where it sold 7.03 percent of the company, or 1.57 billion shares, which was not bought when offered in the company’s initial public offering (IPO) from 2021. 

Now it is listing the entire stake after the counter’s suspension by the Uganda Securities Exchange (USE) during the offer’s period to prevent a possible volatility on the company’s current share price of Shs170 in case of oversupply of shares on the market.
With a 130 percent incentive-adjusted oversubscription rate, MTN’s offer attracted substantial interest and outperformed the 64.81 percent success rate of the 2021 IPO. 
It entailed 30 free shares for every 140 share applications for this secondary offer, which resulted in a 17.8 percent discount on the Shs170 offer price. This was lower than the Shs200 IPO price.

The telecom sold 2.9 billion shares at Shs535.94 billion on its 2021 IPO, despite being undersubscribed by 35 percent. 
Airtel Uganda, its main rival, raised Shs211.43b in its 2023 IPO with a subscription rate of 54.45 percent.

MTN Uganda now complies with the Uganda Communications Commission (UCC)’s rules, specifically Rule 32(7) of the USE Listing Rules 2021. The rules are designed to prevent capital flight while enabling Ugandans to own a portion of the most profitable companies in the country.

Local shareholders in the company now total 20,636 as of December 31, 2023, Crested Capital data shows. New shareholding results show that Uganda’s National Security Fund (NSSF) increased its ownership of MTN Uganda to 11.7 percent from 8.84 percent between last year and the completion of the offer. 

Allotment results haven’t come out but stock market sources note that NSSF could have increased its stake through this secondary offer, where it could have acquired nearly half of MTN’s unsold shares or 649.6 million shares.

The amount that NSSF gave MTN has not yet been made public but some sources have put it at around Shs85b. NSSF remains MTN’s second-largest shareholder, trailing only MTN International, whose holdings in the company have decreased from 83.05 percent during the initial public offering to 76 percent.

The Fund is banking on MTN Uganda, which distributes 60 percent of its net income as dividends to shareholders. This has enabled the telco to pay out over Shs800b in dividends since going public in 2021, its Chief Executive Officer Sylvia Mulinge said early this month. And this is one of the primary reasons MTN Uganda has drawn significant Kenyan investors such as billionaire Baloobhai Patel, Kenya’s National Social Security Fund, and the Central Bank of Kenya. However, the telco imposed a six-month lock-in period on institutional buyers of the secondary offer to avert a possible overabundance of its shares on the stock market and consequently lower trading prices after the new units were released.

Return for new shareholders
The investors in the company’s secondary offer acquired shares at an effective price of Shs140 as a result of the incentives, representing a 21.43 percent capital gain on the current price of Shs170. Subject to withholding tax, they also qualify for the Shs6.4 final year dividend for 2023, which was paid to qualifying shareholders on June 25, whose book closure date was rescheduled from June 12 to allow participants in the secondary sale to be eligible for the payout.

Janet Anayo and Delick Manishimwe, research analysts at Crested Capital, calculate that the new shareholders’ total return will be 25.19 percent, which includes an unrealised capital gain of 21.23 percent and a dividend yield on the current market price of 3.76 percent. The telco stated that applicants whose applications were not accepted or who did not receive the full quota of sales shares applied for “will have the application funds due to them refunded by June 27, 2024.”

Stock market move
One stock market insider close to the transaction said it is happening and the separation of mobile money will only alter the organisation of the business and not its shareholders’ returns.

 They said the telco will separate and establish a “shareholder Trust” under the Trust Act to hold the MTN Mobile Money’s shares on behalf of MTN Uganda’s shareholders.
MTN Uganda’s board would then suggest and shareholders would approve dividends from the income generated by the MTN Mobile Money, which would then be distributed to them according to the shares they hold in the company.

“If, for example, you have your 500 shares in MTN Uganda, but these 500 shares are for both telecom and the fintech arm, now they are going to come and take away the mobile money part, and they will find a way of apportioning your mobile money arm’s shares into the Trust they are going to create,” a reliable source, who was involved in one of the meetings of this transaction, told this newspaper.

“The Trust is going to keep a register of these investors who were invested in MTN Uganda when it was together as a whole. Now what happens is that whenever this Trust receives dividends, it will distribute them to these shareholders,” our source added.
This means by holding shares in the mobile money division through the Trust, shareholders can still benefit from the profitability and growth of this segment.

“Most likely, MTN Group might list the mobile money business at the Johannesburg Stock Exchange,” they anticipated.
Mr Calvin Bateme, a research analyst from Crested Capital, a stock broker, said: “What awaits is how the telecom will structure this because Matercard has bought some stake in MTN Mobile Money at the group level. We are awaiting how this will be done because it is possible that the mobile money arm will stay listed on Uganda’s stock market or listed on another stock market.”

Mobile Money separation

MTN Uganda’s “Ambition 2025 Strategy” includes a relevant element that calls for the division of its mobile money operations from its telecommunications services by the year 2025. This change, according to the company, is being spearheaded at the Group level and is set to cascade to the portfolio assets that each of its subsidiaries owns, including Uganda’s.

“MTN Group is consolidating its infrastructure assets and platforms across its entire Africa footprint to build value and attract third-party capital and partnerships into these businesses,” the company said in a statement early this month.
The participants in the secondary offer invested in both telecommunications services (GSM & Data) operations and mobile money business.

“However, in 2025, MTN plans to separate the mobile money segment and according to the company, at the time of this separation, all minority shareholders will be compensated at fair market value. Post-2025, MTN Uganda will only have its voice and data operations listed, like Airtel Uganda which listed only the GSM & Data business on the USE,” Crested Capital states in a statement released June 21.

The fact that MTN Uganda, a subsidiary of MTN Group, owns both the telecom and mobile money businesses gives its shareholders an advantage over those of Airtel Uganda, who own only the telecom arm. What creates a great deal of uncertainty is the potential movement of MTN Uganda’s stock price as investors respond to their feelings about the separation of the fintech division from the company’s listed asset portfolio.

This is feared to have an impact on the market capitalisation of the company’s stock, which is currently the most valuable on Uganda’s stock market at Shs3.81 trillion as investors oversupply its shares on the stock market. 
Telecom companies are well-liked by investors due to their strong cash flows and the generous dividend policies they hold, but they have also shown that their fintech divisions, which are becoming more popular in terms of usage and revenue generation, are what keep them pinned.

Many investors, both retail and institutional, refrained from purchasing Airtel Uganda’s stock during its listing on the local stock market last year due to the absence of its fintech arm, Airtel Money, from the assets it was listing on the stock market. As a result, the NSSF saved the company on the day of the deadline by purchasing more than 50 percent of the eight billion shares Airtel Uganda was floating to list. But as investors become uneasy about the future of MTN Uganda’s fintech due to its separation and the interest big tech companies are showing in it, the telco has come out to say it owns the fintech in its entirety.

“MTN Mobile Money Uganda is 100 percent owned by MTN Uganda Ltd, which is the listed company. And, therefore, all shareholders of MTN Uganda, including new investors who participate in the offer, will continue to benefit from MTN Uganda’s financial technology business,” Ms Mulinge stated on June 16 while the company was completing the offer for secondary purchase of its shares.