MTN South Africa, having started in 1994 as one of the rainbow nation’s companies of future promise, was initially reluctant to enter the Ugandan market, which it deemed risky considering Celtel’s 3,500 subscribers at the time.
The unwavering resolve of Mbire in securing and convincing credible partners noteworthy, Tristar Investments (who majority owned MTN RwandaCell at inception) was the deal changer.
Tristar Investments, which now goes by the name Crystal Ventures, is the Rwanda ruling party’s business arm. Without Charles Mbire and Crystal Ventures, we would have no MTN Uganda as we know it today.
Now that MTN Uganda is selling its shares to the public in a bid to collect nearly Shs 4.5 trillion from the market, how informed is the public before deciding whether to buy into the company or not?
From the prospectus, a document that details the performance of the company, it is clear critical information was either left out or buried deep into a maze of financial figures that it is hard for a casual reader to understand the state of the company.
On October 19, 2021, I wrote a letter to the Capital Markets Authority (CMA) seeking clarity as regards the MTN IPO. The CMA was gracious enough to answer me a week later.
My letter sought clarity on the following:
1. Source of Bonus (Incentive) shares
CMA replied that incentive shares are within the shares on sale, creating an artificial buffer to undersubscription.
2. Dividend Shenanigans
CMA completely misfired on MTN’s sophistry in displaying four years in dividend policy history (page 32) while having five years in the financials in the same prospectus (page 160)and failed to commit to an obvious paid out dividend of 2021. It is worthwhile to note that MTN had insisted on having three years financial statements in the prospectus to avoid showing the 272 per cent dividend paid out in 2016.
CMA unknowingly insisted on the standard five years and like they say where there is a will there is a way, MTN continued its dividend concealment and to date CMA has no idea of the reasoning behind MTN’s three-year insistence.
3. Missing five-year projection
CMA said this was neither necessary nor required by law. In a nutshell, the CMA both blue ticked me and missed my call at the same time. The source of the bonus shares was to uncover the deception in the MTN IPO pricing consistent with how telecoms price to manipulate consumer habits.
The dividend shenanigans was to allow CMA room to salvage the situation before investors get a sour taste in the mouth post investing, and the question around the five-year forecasting was really about understanding the future of mobile money within the MTN Group.
Without tackling this, the dirt will be on the capital markets industry, which is yet to recover from the Cipla Quality Chemicals IPO, which, with hindsight, was overpriced.
All IPOs in Uganda after Stanbic Bank are trading below IPO price because pertinent listing collective norms and best practices no longer apply – and the outcome is clear that the stock market of Uganda has become a slaughterhouse of sorts with the CMA adept at majoring in minors and minoring in majors. Protecting Your Investment, the CMA slogan is long forgotten.
?Underwriting, the NIC, Umeme, Cipla IPOs were never underwritten and now MTN IPOs has followed suit. In the prospectus, it is clear there is no underwriter for the IPO. Underwriting is paramount for an IPO and at this stock market it last happened with Stanbic Bank’s IPO 15 years ago.
Its basic premise is about pricing. It is when an investment banker or insurance company undertakes to buy all shares of an IPO to safeguard the investing public by ensuring to purchase all shares at an agreed IPO price. In effect, they will do their analysis and be comfortable with a certain price to pay which then becomes the IPO price.
?Forecasting, An IPO is premised on a promise of the future, basically to raise money for future growth, which you will partake in as a future shareholder. A forecast is a numbers and figures promise of how management sees the business and with its better view allows you to have a glimpse.
IPOs typically have unsophisticated investors, so helping us see is paramount. It used to happen at listings in Uganda but not anymore. MTN is freaked out on this by having to show forecasts with mobile money out of the listed business as will happen.
The Capital Markets Authority of Uganda, in its laxity, vividly brings the words of the eloquent Kenyan lawyer, P.L.O Lumumba, to life when you substitute Africa with CMA.
“The problem with Africa is that those who have ideas have no powers and those with powers have no ideas.”
In a few months, the CMA and the Uganda Securities Exchange will be grappling with accounts of shareholders without sufficient Know Your Customer, who invested in the IPO.
MTN Uganda has drained its coffers to pay out dividends of Shs 230 billion as at end of September 2021 in accordance with its recently formulated Dividend policy. MTN categorically states a dividend policy of 60 per cent but has gone ahead to pay 70 per cent before new shareholders can come in.
In simple terms, MTN is selling you a house after you have agreed the price and rushed to the bank to pick the money to pay. MTN is hurriedly digging out the floor tiles and will leave you the house; make no mistake you will find your house but without the floor tiles.
Of the Shs 14 each share is anticipated to earn at the end of 2021, MTN has already taken Shs 9.8 and there is a high chance that in line with the 60 per cent dividend policy that has been exceeded, there will be no need for another dividend for the year end 2021.
Although this action has legal standing, it smirks of financial immorality and will irrevocably erode trust. Though MTN is being presented as a growth stock for future gains, the owners, from their actions, clearly show that it is a mature dividend stock.
Ambition 2025 is an MTN Group strategy aimed at establishing a separate MTN Group financial technology structure in the course of 2022. This is meant to build value, attract third-party capital, and attract partnerships (page 50 of the prospectus).
MTN, on page 51, continues by saying that the separation and consolidation of the financial technology (mobile money) will be undertaken on an arms’ length basis and in line with market standard, ensuring equitable treatment of minority shareholders.
The Uganda Communications Commission licence that compels MTN to sell shares to the public does not cover the mobile money business as elucidated in the prospectus.
From the above MTN you know that:
Mobile Money is going to be separated from MTN Uganda
MTN Uganda which now owns mobile money (MoMo) has promised that when it is separating MoMo it will do it fairly. MTN Uganda has also said that the majority owner of MTN Uganda will be owning 75 per cent and that it doesn’t have to treat MTN Uganda and minority shareholders fairly since it owns 75 per cent.
The UCC licence that compels MTN Uganda to list does not cover MoMo meaning it is not part of the company required to list. The sticking rumour that MTN Uganda’s shares on sale now do not include MoMo is false but not farfetched.
This is going to come to a devastating reality within 12 months of listing, the very reason CMA and MTN couldn’t dare put five years financials forecast as it would clearly show this.
The power of mobile money is in its contribution to future growth and shareholders will be stuck in a business with falling voice and commoditized easy to tax data.
When MoMo is separated, MTN Group which owns 75 per cent of MTN Uganda will pay a price to buy MoMo from majorly itself.
In the year 2019, MoMo accounted for 22 per cent of MTN Uganda’s revenue and 42 per cent of its net profit. In 2020 revenue contribution was 23 per cent and 45 per cent of net profit. One marvels at such a business cash cow being stripped out of the company. It is like removing an engine from a car!
muantus@gmail.com
The author is a keen follower of Uganda’s capital markets.
