How 20pc share offer rule starves Uganda’s bourse of public listings

Monday August 26 2019

Stockbrokers trade on Uganda Securities Exchange. A rule that requires local companies to offer at least 20 per cent of their shares to the public before they are listed on the USE is keeping away large companies from listing. PHOTO | FILE | NATION MEDIA GROUP


A rule that requires local companies to offer at least 20 per cent of their shares to the public before they are listed on the Uganda Securities Exchange is keeping away large companies from listing.

According to industry sources, large companies operating in Uganda have majority ownership of between 85 per cent and 90 per cent held by big multinationals.

Under the old practice, minority investors in a company willing to list on the stockmarket gave up 10 per cent of their shares while majority owners offered an equal amount in order to achieve the minimum 20 per cent public offer threshold.

The 20 per cent share requirement is deemed sufficient by capital markets regulators for substantial allocation of shares to various investor categories and vibrant secondary market trading, experts say.


However, some cases of minority investors with less than 10 per cent shares and majority shareholders reluctant to sell more than 10 per cent of their shares have complicated matters for potential initial public offerings (IPOs).


Stiff commercial disclosure requirements also pose a big headache to large but secretive foreign investors nervous about the calibre of local regulators.

“There is a case of a big local bank that expressed interest in listing on the USE sometime back but abandoned the idea due to lack of shareholder compromise over the 20 per cent share offer rule. While the minority shareholders own less than 10 per cent of the business and were willing to offload some of their shares, the majority institutional shareholders were uncomfortable with the idea of selling more than 10 per cent of their shares so as to comply with the listing ratio. As a result, their IPO dream was shattered in the boardroom. This problem tends to affect similar firms that may consider listing on the stock market,” said an equity analyst who requested anonymity, citing confidentiality obligations.

An examples of a big company with a few large shareholders and small minority investors is MTN Uganda, the country’s largest telecommunications service provider. MTN Group Ltd of South Africa owns more than 90 per cent of the company’s shares while a Ugandan businessman holds less than five per cent shares. MTN Uganda is still considering a listing on the local bourse in line with government’s conditions for renewal of its licence, but there is no confirmation yet of the company’s transaction roadmap.

Century Bottling Company Ltd, a local producer of Coca-Cola products, is a subsidiary of Coca-Cola Beverages Africa, which owns more than 90 per cent shares in the soft drinks business while minority Ugandan investors own less than eight per cent.


Centenary Bank Ltd, the largest Ugandan controlled commercial bank, currently has four institutional shareholders and four minority shareholders. The registered trustees of various Catholic dioceses in Uganda hold 38.5 per cent shares while the registered trustees of the Uganda Episcopal Conference own 31.3 per cent shares, according to the Bank’s annual report for 2018. SIDI, a French financial institution, owns 11.6 per cent shares while Stichting Hivos-Triodos, a Dutch investment firm, owns 18.3 per cent shares in this bank. The four minority individual owners collectively 0.3 per cent shares.

Bank of Africa Uganda Ltd, one of the oldest mid-tier lenders in the banking industry, has three foreign shareholders and one local investor. Bank of Africa Kenya owns 43.24 per cent shares while African Financial Holdings Indian Ocean holds 37.96 per cent shares. The Netherlands Development Finance Company (FMO) owns 11.04 per cent shares in Bank of Africa Uganda while Central Holdings Ltd, a Ugandan firm holds 7.76 per cent shares. BMCE Morocco is the holding company of Bank of Africa subsidiaries located across Africa.

“Our parent company is listed in Morocco but listing on the USE is not one of our strategic objectives over the next three years. It is really hard to figure the gains of becoming a listed commercial bank from my working experience,” said Bernard Magulu, executive director at Bank of Africa Uganda.

In contrast, the listing of Stanbic Holdings Uganda Ltd on the USE in 2007 was supported by a 10 per cent share sale done by Standard Bank Group and a 10 per cent share sale undertaken by the government of Uganda.


Similarly, the listing of Bank of Baroda Uganda (BOBU) in 2002 was facilitated by a 10 per cent share sale done by the Indian majority owners and a 10 per cent share sale carried out by the government of Uganda.

“I understand the dilemma faced by large companies owned by foreign investors and a few local minority shareholders when confronted with the idea of listing shares on a stockmarket that applies the 20 per cent share offer rule. In my view, a very popular company that enjoys strong public interest like MTN Uganda deserves to be fully subjected to the 20 per cent rule so as to benefit several members of the general public that are keen on buying its shares when available for sale,” argued William Nyakatura, chief executive of Kinsman Advisory, a small investment consultancy firm.

“The 20 per cent share offer is based on volume. But I believe a new parameter based on IPO transaction value or a percentage of company share capital, whichever is lower would make life easier for companies wishing to list on the stock market. This scenario will eventually eliminate stress caused by the 20 per cent share offer requirement,” noted Keith Kalyegira, chief executive officer at Uganda’s Capital Markets Authority.

Scarcity of IPOs experienced in recent times has piled enormous pressure on income streams belonging to capital markets regulators, stock exchanges and stockbrokers in Uganda and Kenya. This has forced industry players into massive cost cutting in order to remain afloat. But prospects for new IPOs remain low in the market environment, observers say.