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Causes and Effects of the MTN Share Sale Shortfall

The shares allocated to the 21,394 new shareholders also include those given as bonuses because, for every 100 shares paid for, the applicant got an extra 10. Close to 900 billion Shillings was expected from the IPO, but the proceeds from the sale amounted to 535.939 billion Shillings, meaning that at the end of the IPO, the shares were under-subscribed by more than 35 per cent.
04 Dec 2021 17:13
MTN Uganda's Initial Public Offer (IPO), saw 2.9 billion shares allocated to new shareholders, out of the 4,477,808,848 that were offered to the public.

The shares allocated to the 21,394 new shareholders also include those given as bonuses because, for every 100 shares paid for, the applicant got an extra 10. Close to 900 billion Shillings was expected from the IPO, but the proceeds from the sale amounted to 535.939 billion Shillings, meaning that at the end of the IPO, the shares were under-subscribed by more than 35 per cent.

The question remains; why did the share offer not attract the expected response from the public? The IPO was long-waited having been discussed for close to two years since the Uganda Communication Commission and the Ministry of Finance mooted the idea of requiring telecom companies to sell shares to the public.

Being one of the biggest companies in Uganda and arguably the most popular by virtue of the kind of services it offers, the expectation should have been for all the shares to be subscribed for, or at most an oversubscription. But MTN teams faced challenges immediately after the IPO was announced, with questions ranging from the motive of the share sale, to the real value or profitability of the company and whether Mobile Money, one of the most lucrative businesses, was part of the sale.

The team explained how mobile money was fully a part of the sale, how the company was profitable and with no huge debts as was being claimed, and how their share sale was a requirement by the government as opposed to the company looking for money to finance debts. Roadshows were then conducted across major cities in the country and in Kenya, one of the main sources of investors in Uganda's stock market.

"People had so many questions and we realized there was a lot of knowledge gap in the public. This is understandable because of the long time it has taken without an IPO in the country," said Wim Vanhelleputte, MTN Uganda Chief Executive Officer. The company also had to contend with what it called inaccurate and misleading information on social media about it, mainly touching on its image.

Of the previous IPOs, none had registered an under-subscription. Uganda Clays, the first to list in 2000 saw the number of applications go above the expected by 15 per cent, while it was 5 per cent for BAT, the second IPO in Uganda. The Stanbic Bank IPO registered the biggest oversubscription of more than double the shares they put up for sale, followed by the New Vision Group's over 40 per cent.

IPOs for Umeme, NIC Insurance and Bank of Baroda were all oversubscribed by between 16 and 35 per cent. Although the lead brokers of DFCU shares did not reveal to what extent its windfall was, the management later said it amounted to 180 million Shillings or about 1 per cent.

MTN's lead transaction advisors, brokers and sponsors, Stanbic Bank and SBG Securities are due to give a detailed report on the concluded exercise, but MTN management called it a success. "The biggest IPO in the history of Uganda has come to a successful conclusion! From two shareholders to almost 22,000!" said Vanhelleputte.

A financial writer on global markets, Adam Hayes says the marketing and pricing of the IPO usually affect the outcome.

"Under-subscribed offerings are often a matter of over-pricing the securities for sale or on account of poor marketing of the securities to potential investors," he says, adding that higher pricing is usually preferred by institutional investors as opposed to individuals.

"Many investors also stay away if they spot any problems or irregularities with the company," says Indian Security Broker, Kotak Securities. Whether an under-subscription is good or bad when the shares go onto the market, also depends on some factors.

Usually, over-subscribed IPOs will make gains on an opening day at the stock exchange, because investors who missed out on the IPO may still have the thirst.

"The under-subscribed IPOs, meanwhile, rarely record listing gains. But that’s not to say the stock is condemned to underperform throughout. These stocks can bounce back over time due to better confidence in the market, healthy financial state and conducive market conditions," says Kotak.

MTN Uganda's shares will start trading on the Uganda Securities Exchange on Monday 6. 

For now, MTN International (Mauritius) Limited retains 83.5 per cent in MTN Uganda, followed by National Social Security Fund Uganda, with 8.8. per cent.  Erstwhile sole Ugandan shareholder, Charles Mbiire has 3.99 per cent with the other shareholders sharing the rest.

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