East African investors have been offered free shares to motivate them to buy stock in telecoms firm MTN Uganda that opened its $250 million (Ush895.56 billion) initial public offering (IPO) on Monday.
South Africa’s MTN Group is selling 4.47 billion shares in its Ugandan subsidiary at a price equivalent to $0.06 (Ush200) apiece.
To boost chances of the offer being successful, which will require applications for purchase of at least 1.1 billion shares, MTN is offering prospective investors free shares of between five and 10 units for every 100 units allocated.
This represents an effective discount of five to 10 percent of the purchase price, assuming an investor gets his full allocation and the incentive shares.
There are no allocation quotas but Ugandan investors will be given priority in case of oversubscription, offering other East Africans unlimited room to snap the stocks.
“As part of the offer, and in alignment with the objective of broadening Ugandan shareholding in MTN … the selling shareholder will transfer incentive shares at nil cost to the categories of qualifying applicants that apply for and are allocated the sale shares,” the prospectus says.
“Accordingly, eligible applicants will receive an allocation of sale shares which the applicants will be required to pay for and, in addition, an allocation of incentive shares which the applicants will not pay for.”
The Uganda Communications Commission (UCC) in 2019 directed all foreign-owned telcos to reserve at least 20 percent of shares to locals and East Africans by end of 2021 in the deal meant to spur local ownership of the telecoms industry.
MTN Uganda is currently owned by MTN Group (96.01 percent) and businessman Charles Mbire (3.98 percent).
The IPO is open to Ugandan investors as well as citizens of other East African Community member states. Foreign investors can also participate in the offer.
Ugandan investors, however, are being given the top priority in the share sale.
Institutional investors in Uganda and other East African countries will have to invest larger amounts to get free shares.
To get five free shares for every 100 units allocated, professional investors must apply for stock with a minimum value equivalent to $1 million.
To qualify for 10 free shares for every 100 units allocated, the investors will need to apply for stock worth a minimum of $50 million.
Institutional investors stand to gain the largest discounts that could run into hundreds of millions of shillings.
The incentive shares are rare for an IPO in the regional market and signals MTN’s determination to ensure the offer is successful.
“The selling shareholder may suspend the offer and refund all funds received from applicants in the event that aggregate applications of at least 25 percent of the offer shares (approximately 1,119,452,212 offer shares) are not received,” the prospectus says.
“In taking this course of action, the selling shareholder will consult with and seek the consent of the Capital Markets Authority of Uganda and the Uganda Securities Exchange.
Ugandan retail investors applying for an aggregate minimum value of $1,400 will be allocated all the shares for that value in addition to the number of incentive shares that they are entitled to, subject to the total number of offer shares available.
All applications in excess of an aggregate minimum value of $1,400 in case of retail investors will be allocated all the shares and the corresponding incentive shares on a pro rata basis.”
The pro rata distribution of incentive shares will be determined by MTN in accordance with the allocation priority “and in such a way that persons within the same category of applicants shall be treated in a fair and equal manner with regard to their applications.”
The IPO will potentially be Uganda’s biggest ever and a major boost to its stock market, a small bourse with 40,000 investors trading just 17 stocks.
The Ugandan government set the listing of telcos on the local bourse as one of its licence renewal conditions to allow local ownership of big companies with few large shareholders.
The listing will make MTN Uganda the second publicly traded telco in EAC after Safaricom IPO on the Nairobi Securities Exchange in 2008.
- Business Daily