Airtel Uganda has announced plans to list a 20% stake in the company through an IPO. This follows the directive under the National Broadband Policy (2018), which requires all foreign telcos to list on the Ugandan stock exchange and float at least 20% of their shares before June 2022. Uganda’s biggest telecom company MTN Uganda has already adhered to this regulation through its UGX535bn (US$152mn) listing in December 2021. In this report, we analyse the impact of these listings on the Uganda Securities Exchange (USE) and vice versa.
The transformative power of telcos listing
Airtel Uganda's IPO plan is positive for the USE. Before MTN Uganda's listing (we discuss this in detail further down the report) in November 2021, the bourse had just 17 listed stocks. MTN Uganda's IPO is believed to have increased market participation as c74,000 new central securities depository accounts were opened. In addition, the market capitalisation of USE is now cUGX24tn (US$6.8bn) with MTN Uganda making up c17% of it.
Ultimately, the addition of Airtel Uganda to the USE provides more listed options for both local and foreign investors, while stocks such as Stanbic Uganda could also benefit from the spotlight on USE.
By way of comparison, we look at how key telco listings have improved participation in other African markets and their attractiveness:
Kenya has benefitted from the listing of Safaricom, which is now c60% of the Nairobi Stock Exchange.
MTN Ghana, which listed in 2018, is one of the most traded stocks on Ghana's stock exchange. It accounts for over 20% of the exchange's market cap and is one of the best-performing stocks in Africa in 2021, making the Ghana Stock Exchange one of the best performing in the region.
MTN Nigeria makes up c16% of the Nigerian stock exchange, and its recent share offer for sale drew massive interest from the public not seen since the 2008 market crash.
Listings to help drive long-term strategies for telcos
Although these listings were necessitated by a policy directive, both MTN Group and Airtel Africa have been vocal about deleveraging and freeing up capital for their next phase of growth. Hence, we think this is an excellent opportunity for the companies to continue to drive some of their long-term strategies (we also see scope for both companies to close the gap on Kenya's Safaricom).
For instance, MTN Group has reduced its holding in the Ugandan subsidiary from 96% to 83.05%, making US$152mn from the listing. Elsewhere, the telco has sold some of its towers in South Africa in a US$414mn deal, conducted an offer for sale of 575mn shares in Nigeria and has sold part of its shares in IHS towers, all in the last six months. The strategy is in line with its asset realisation programme to free up capital for its future ambitions around its platform and fibre businesses, and possibly data centres.
MTN Group’s asset realisation programme
Source: Company presentation (June 2021)
Looking ahead, we anticipate a stake sale in MTN Ghana, especially given the high level of interest in the stock in 2021. It is likely that MTN group will also conduct another offer for sale of MTN Uganda's stock in order to meet the regulatory requirement of a 20% float, but not in the immediate future as MTN International and other existing investors (pre-listing) have a 12-month lock-in agreement.
Airtel Africa, meanwhile, is towing a similar path. Due to its transition into an asset-lite business model, the company is selling off towers across the continent, announcing just last week the closure of the US$176mn Tanzania tower sales deal. It also plans to separately list its mobile money arm, Airtel Mobile Commerce. These exits provide an avenue for the company to deleverage its balance sheet – Airtel Africa has reduced its debt-to-equity ratio from over 100% to c75% in the past year.
MTN's underwhelming listing highlights the challenges that Airtel Uganda could also face
MTN Uganda conducted one of the biggest IPOs out of Africa last year, but it was undersold. Following the directive from the Ugandan authority, the telco giant aimed to list 4.47bn shares at a price of UGX200, but there was low level of interest in the shallow Ugandan market. As a result, the IPO was undersubscribed, selling just 2.9bn shares and raising UGX535bn (US$152mn versus an expected US$250mn) from the sale despite offering free 5-10 units for every 100 units of shares allocated (for purchases of more than one billion units) and opening up the offer to East African Community member states and other foreigners. The telco had targeted over 100,000 retail investors, but saw just a little over 21,000 applicants.
Reports suggest the impact of Covid on the Ugandan economy, insufficient marketing of the stock or pricing, and muted participation from domestic and foreign investors as some of the reasons for the underwhelming turnout.
On pricing, MTN Uganda listed in line with the valuation of other African peers – at a P/E of 13.8x and an EV/EBITDA of 4.5x, in line with the African peer median of 13.9x and 5.4x. Despite this, the stock price has declined since its listing, currently at UGX181.
If MTN Uganda's IPO is any indication, Airtel Uganda is also likely to face the same low level of interest. The exception is that it is priced at a significant discount.
