Last week, Airtel Uganda, the second-largest telecommunications company in the country, had to sell over half of its shares in its initial public offering (IPO) to the National Social Security Fund (NSSF). This occurred after they failed to attract enough investors.
The IPO, which closed on October 27, 2023, was Uganda’s largest ever. It offered 8 billion shares at 100 shillings each, valuing the company at Shs 4 trillion. However, the market response was lukewarm. Only 3.2 billion shares were subscribed by the public as of October 26.
In a last-minute move, NSSF stepped in and bought 4.8 billion shares. This equals 50% of the IPO stock and 10% of the company’s total equity. NSSF is a statutory body responsible for managing the retirement savings of private sector employees in Uganda. They have over 2.5 million members and assets worth over 15 trillion shillings. NSSF’s decision to invest in Airtel Uganda was based on the company’s strong financial performance and growth prospects. They also considered the potential for dividend income and capital appreciation.
Airtel Uganda is a subsidiary of Airtel Africa, a leading provider of mobile services across 14 African countries. They’ve been operating in Uganda for over 25 years. With 14.3 million active subscribers, they account for 47.3% of the market share. For the year ending December 31, 2024, the company reported revenues of 1.6 trillion shillings, earnings before interest, taxes, depreciation and amortization (EBITDA) of 888 billion shillings, and net income of 326 billion shillings. The company also boasts of having the fastest and most comprehensive 4G network in the country, covering over 90% of the population.
Despite these impressive figures, Airtel Uganda faced several challenges in attracting investors to its IPO. One of them was the unfavourable investment climate in Uganda. This was characterized by high inflation, high interest rates, low domestic savings, weak capital markets, and political uncertainty.
Inflation in Uganda averaged 3.5% in FY23, but it peaked at 10.7% in October 2022 due to food price shocks and currency depreciation. Interest rates remained high throughout the year. The central bank’s policy rate was at 10% for most of FY23, with commercial bank lending rates averaging over 20%. Domestic savings were low at around 13% of GDP, compared to the regional average of 17%.
The capital markets are also underdeveloped, with only 18 listed companies and low trading volumes on the Uganda Securities Exchange (USE). Moreover, political uncertainty ahead of the general elections scheduled for February 2024 may have deterred some investors from committing their funds to long-term investments.
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