Is NSSF purchase of Airtel shares good for its savers?

The public sale of Airtel’s shares through an initial public offering (IPO) was primed to be a total nightmare until the last minute intervention of the National Social Security Fund (NSSF).

NSSF was hesitant to invest in this transaction because it had already burned its fingers in businesses such as Uganda Clays Limited, Cipla Quality Chemicals Limited, Safaricom Kenya, and New Vision Publications Limited.

However, Airtel was persuasive enough to have the Fund to cash out Shs199b at the 11th hour. Airtel’s allotment results showed that NSSF acquired 93 percent of all shares that were bought.

Ultimately, the Fund paid Shs199 billion for 4.2b shares, or 10.55 percent of the publicly offered stock, which was more than 50 percent less than what it would have ideally been purchased for at Shs400 billion.

NSSF purchased each share at a price relatively close to Shs47. Analysts say the stock cannot quickly fall tremendously because the Fund can deter significant trading on the telco’s counter thanks to holding the majority of the stock.

The Fund would double the amount it invested in Airtel’s stock even if it sold it in the secondary market tomorrow at the current market price of Shs100. This is because the telco gave it twice as many shares to convince it to buy a big chunk. This means that, at the very least, its capital gains investments are safe.

NSSF could as well recoup 26 percent of its investment in Airtel next month after Airtel’s dividend pay-out for the financial year ending December 31 as noted in the telco’s prospectus.

The Uganda Securities Exchange listing rules require approved dividends to be paid within 21 days of book closure, which, for Airtel, was October 27.

This is possibly the reason why NSSF opted for this move because, according to its financial statements for the financial year to June 2023, dividend income was its most growing source of revenue among its investments, rising to Shs145.12b in June 2023 from Shs99.8 b in June 2022. Its other revenue streams include real estate investments and government papers.

“We are trying to make our investments robust by mixing assets which have a target of 17.5 in equities, 70 percent in fixed income and a target of 5 percent in real estate. That is a conservative asset mix which is aimed to reduce the volatilities that affect returns in equity markets,” said Mr Gerald Kasaato, NSSF’s chief investment officer at the Fund’s 11th annual general meeting.

Airtel was stranded and wanting. The telco only wanted Shs800 billion from the eight billion shares it floated, but the public seemed uninterested. Airtel was forced to extend its IPO and double its shares for each prospective buyer. Here retail investors ended up buying a share at a price close to Shs90 and institutions at a much lower price.

The Capital Markets Authority required it to have at least 20 percent of its floated stock purchased by the public for it to be approved for listing. Per sources close to the negotiations, Airtel was in serious talks with NSSF to convince it to purchase its shares at a lower discount.

The Fund was keen not to repeat past mistakes with previous IPOs. In its financial statements for the period that ended June 30, the Fund registered foreign exchange losses worth Shs1 trillion in bonds and equities it had invested in across the East African regional markets, mostly from Kenya.

The reason for this, according to Mr Kasaato, is the exodus of foreign investors from emerging markets to western economies for a variety of reasons, including Kenya’s massive debt repayment of dollar-denominated debts that resulted in a shortage of the greenback in that country’s economy.

Airtel promised the market a very attractive dividend policy of 95 percent of profits after tax. In addition, it said those who bought shares during its IPO would be eligible for a dividend for the last two quarters of 2023, totalling Shs500 billion.

However, NSSF has lost big sums in securities. Unlike fixed-income investments, equity investments can be volatile. Larger drops occur occasionally, but, historically, markets have bounced back from declines.

One of NSSF Uganda’s largest unrealised losses in equity investments is Cipla Uganda. As of October 28, stock market analysts note, the Fund has already registered Shs51 billion as a result of the share price falling from Shs256 at the IPO in 2018 to the current Shs65.

When Cipla Uganda went public, NSSF paid Shs69 billion for 269 million of its shares, which the Fund still holds as of June 30.

At least five NSSF-invested businesses—Equity Bank, Jubilee Insurance Ltd, KCB Kenya, Safaricom Ltd, and MTN Uganda—were reporting stock value losses by 2022.

An analysis by Mr Alex Kakande, a financial markets analyst, shows that, from the aforementioned firms, the Fund has lost the most money (Shs23.4b) in MTN whose IPO happened in 2021.

“However, for MTN, this is countered by a significant dividend of around Shs33b that NSSF Uganda received in April 2023,” he noted in a statement.

In addition, it has registered losses from Equity Bank (Shs1.9b), Jubilee Insurance Ltd. (Shs2.4b), Safaricom Kenya (Shs16.9b), and KCB Kenya (Shs17.8b) to date.

But the Fund has made a tidy Shs222.7b from its Shs1.24b investments in Stanbic Bank Ltd stock, where it has purchased 46.8 million shares.

‘Funds well managed’

During the 11th AGM of the NSSF, Mr Patrick Ayota—its managing director—stated that members can provide input to the fund through AGMs and daily operations, which is taken into consideration when savers wish to choose which investments the fund should make or change, but can’t authoritatively decide them. “Fortunately for us, we have been able to get very smart people within the Fund that are managing all this asset mix that requires a scientific approach towards how your funds are invested,” he said in September.

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