MTN Explains Undersubscription As Share Price Increases

MTN Uganda CEO Vanhelleputte blamed misinformation especially by social media about the company and the listing process in particular, to the extent of the company and the Capital Market Authority being sued for alleged violation of regulatory procedure, which suit did not succeed.

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MTN Uganda Share prices gained on the first day of trading on the Uganda Securities Exchange, from the Initial Public Offer price of 200 shillings per share.

The shares traded at an average 205 shillings per share, which was a gain of 2.5% from the IPO price, erasing fears of an underperformance in the first days of the listing.

The fears were due to the result of the IPO that showed that the public had purchased only 65 percent of the shares that the company offered in the IPO and many reasons for the undersubscription were suggested including low demand.

However, in the first 10 minutes of trading on the USE Monday registered turnover of 64,000 shares while the value of MTN Uganda as a company increased by 189 billion shillings. This caused excitement among the leadership of the company, Stanbic Bank who the transaction advisors, and SBG Securities the lead broker, as well as the shareholders.

MTN Uganda Chief Executive Officer, Wim Vanhelleputte said that they encountered a lot of challenges during the IPO period, but mainly due to the lack of awareness amongst the public largely because of absence of IPO activities in Uganda in a long time. He also blamed misinformation especially on social media about the company and the listing process in particular, to the extent of the company and the Capital Market Authority being sued for alleged violation of regulatory procedure, which suit did not succeed.  

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The sale of at least 20 percent shares to the public is one of the conditions that are given to companies seeking to get a National Telecommunication Operator (NTO) license.       

Now, at 65 percent subscription, the company is yet to meet the requirement, according to the Uganda Communications Commission, of having a local ownership of at least 20 percent.

This currently amounts to about 15 percent of the company owned by Ugandans. The capital markets authority has however given MTN a grace period of three years and MTN CEO Vanhelleputte says that this will be met within that time frame.  

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Uganda Communications Commission Executive Director, Irene Sewankambo says it will take long and a lot of effort to make the Ugandan public appreciate the financial market because, apart from lack of knowledge, there is too much misinformation via social media.

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In what has so far been registered as the largest initial public offering in Uganda’s history, and in Africa this year, the primary share sale raised 535 billion shillings from applications for 2.9 billion shares (including incentive shares).

MTN says that the applications that were not successful were the ones which had errors, mostly regarding the identity of the applicants. The Acting Chairman of USE, Richard Byarugaba says the private investors should learn from MTN experience that there is a lot of money for capital though the stock market instead of going for the expensive commercial bank loans.

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Mbiire’s MTN story: 

MTN International sought a partner to start telecommunications services in Uganda in the late 1990s.

Businessman Charles Mbiire together with his partners launched a bid and won the tender.

The next step was for him to look for the money to meet the required investment (share-capital) which had been evaluated by the International Finance Corporation, an investment arm of the World Bank.

The available options there were venture capital because commercial loans were too expensive, but unfortunately, the venture capital company that had promised him assistance withdrew from the deal just abruptly. In his words, Mbiire says several banks bounced him, and he was forced to sell off his properties including houses and a firm. 

Finally, according to him, he got a Stanbic Bank loan and guarantees to get funds from other banks to raise the money.

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The Minister of ICT and National Guidance, Chris Baryomunsi told MTN not to relax on its mandate now that they have fulfilled a major requirement. He specifically warned against the high cost of data and also the poor quality of calls, saying that the parliament has summoned him and he is due to give a statement on the cost and quality of the services. 

He said that apart from the local person to person communications, the high costs of data are affecting the job creation as Business Outsourcing relies heavily on the affordability of the internet.

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