MTN Uganda is offering East African investors free shares to motivate them to buy stock in the telecoms firm that opened its $250 million (Ush895.56 billion) initial public offering (IPO) on Monday, so as to boost its chances of being successful.
The IPO is open to Ugandan investors as well as citizens of other East African Community member states, including Kenya. Foreign investors can also participate in the offer. However, Ugandan investors are being given the top priority in the share sale.
The success of this project will require applications for the 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, which represents an effective discount of five to 10 per cent of the purchase price, assuming an investor gets his full allocation and the incentive shares.
Currently, there are no allocation quotas however, 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. Accordingly, eligible applicants will receive an allocation of sale shares which the applicants required to pay for and, in addition, an allocation of incentive shares which the applicants will not pay for.” the prospectus says.
In 2019, The Uganda Communications Commission (UCC) directed all foreign-owned telcos to reserve at least 20 % of shares to locals and East Africans by end of 2021 in the deal meant to spur local ownership of the telecoms industry.
However, 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 Kes 109.3 million, while to qualify for 10 free shares for every 100 units allocated, the investors will need to apply for stock worth a minimum of Kes 5.5 billion.
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 signal 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. 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 Stock Exchange.” the prospectus.
MTN Uganda is currently owned by MTN Group (96.01 per cent) and businessman Charles Mbire (3.98 per cent).