With MTN listing in 2021, Airtel in 2022… is Uganda close to ‘Frontier Market’ category?

MTN Uganda, a subsidiary of South Africa’s MTN Group, arguably the richest company in Uganda – with a net worth of more than $1.2trn – completed a record Initial Public Offer (IPO) on 6 December 2021 and started trading on the stock market.

Attaining frontier market status would put Uganda on the radar of large institutional investors that currently ignore smaller and less liquid exchanges; and the hope is that the listing of Airtel in 2022 will help get the country to the goal.

A record

Uganda Securities Exchange CEO Paul Bwiso said 74,000 new trading accounts were opened during MTN’s IPO, bringing the total accounts on the stock market to 11,3000, which was a 195% account increment, from the 38,000 they had before.

MTN was the first company to raise a record $152m in an IPO since the opening of Uganda’s stock market 25 years ago. The company sold 2.9 billion shares with each share sold at USh200 ($0.056).

“With this listing, MTN Uganda becomes the Ugandan stock with the largest market capitalisation [in] the USE,” MTN Group President and CEO Ralph Mupita says. Quoting a McKinsey report, Stanbic Bank Uganda CEO Anne Juuko says the IPO is the largest in Africa in 2021.

Under performed

However the IPO underperformed. MTN had floated 4.5 billion shares and expected to raise $250m from it. That a company of MTN’s net worth couldn’t sell all the shares it floated is indicative of hurdles that USE must overcome as it seeks to join the frontier markets category. The main hurdle is how to entice more Ugandans to invest in the stock market.

The level of savings determines the level of investment in a stock market. You always need institutional savers to lead the investment process.

The USE opened in 1997 at a time when Uganda was divesting parastatal agencies. The government’s belief was the parastatals it was selling would grow quickly and list on the stock market, but the reality has been the antithesis of the assumptions.

USE has been dormant over the years. It has attracted only 18 companies on its listing in 25 years. Before MTN, the last large company to list was UMEME, the electricity distributor in 2012, which also failed to sell shares it had floated. Had it not been National Social Security Fund (NSSF), the national provident fund which has heavily in stock market, MTN and UMEME IPOs would have underperformed.

NSSF bought 8.84% MTN shares worth $100m, which is a substantial percentage of about 13% shares that MTN sold. NSSF also invested $39m in UMEME shares over the years. The government tasked MTN to sell 20% of its net worth. The company still holds 83.05% and will be required to initiate a secondary IPO to sell the remaining 3.05%.

Keith Kalyegira, CEO of the sector regulator Capital Markets Authority, tells The Africa Report that the biggest foundation of development of a financial system is domestic savings. Without NSSF, whose savings portfolio is about $3.9trn, he agrees that the stock market would still be performing worse. “The level of savings determines the level of investment in a stock market. You always need institutional savers to lead the investment process,” he says.

If MTN Uganda had listed on the stock market 10 years ago when the level of domestic savings was low, Kalyegira argues it wouldn’t have found NSSF ready to buy its shares. Nevertheless, MTN’s listing wasn’t out of its volition, it was forced by the government. President Yoweri Kaguta Museveni stood firm when MTN Uganda tried to lobby against the listing.

Museveni has always argued that companies, such as MTN Uganda, which are profitable, shouldn’t be repatriating all their profits. According to him, their profits should be shared with Ugandans through local listings. It’s the same story for Airtel Uganda; it won’t list out of its own volition.

Forcing profitable companies to list on the stock market shows that the government has come to appreciate that the capital markets won’t grow without its intervention, says Abaho Herbert, an economist in Kampala who has done research in the field.

Even so, Louis Namwanja Kizito, a commercial lawyer whose specialties include stock markets, says the government could have forced MTN Uganda to list in a bid to make it more transparent. “From a tax perspective, they might have wanted to limit how much MTN can hide. Once you’re listed, all your transactions become public,” he says.

In 2018, security agencies raided MTN data center over suspicion that the company was under-declaring its calls volume and that it was being used by the Rwanda spies to eavesdrop conversations of Uganda leaders. The dispute between MTN Uganda and government ebbed to the lowest point in early 2019 when the company CEO was deported over ‘security concerns’.

Eyeing frontier market category

To be categorised as a frontier market, Kalyegira says USE needs to have two companies whose net worth is at least $700m on its listing. MTN Uganda is the first and the bet is on Airtel Uganda to be the second. “The telecom sector is going to be the main supplier of these companies. Airtel Uganda is going to come soon,” Kalyegira says. “We don’t know what the value of Airtel is but even if it’s half of MTN, we expect it to grow in value shortly after listing.”

The Nairobi Stock Exchange (NSE), Stock Exchange of Mauritius, Nigeria Stock Exchange are among stock markets that fall in the frontier category in Africa. For Uganda Securities Exchange to get to this category, experts think architects of the plan must do more.

George Bodo, CEO of Callstreet Research and Analytics, which is based in Nairobi, says the Kenyan government boosted the NSE to exit many of its strategic holdings in companies such as Kenya Airways, KenGen, Kenya Power, Safaricom, Mumias Sugar Company by inviting the public to partake in those entities.

The more you open up the stock market, the more you attract more companies and investors.

A similar move would have been the easiest way of raising the profile of Uganda stock market, he says. However, Uganda doesn’t have this opportunity anymore because it privatised its parastatals in the late 1990s.

Namwanja Kizito says the regulator – Capital Markets Authority – must up its competitiveness, get rid of archaic laws and be innovative to attract many more listings. Abaho says the regulator should open up the stock market to medium-sized companies by creating tiers based on capital requirement, size and sectors.

“The more you open up the stock market, the more you attract more companies and investors. A person who may not afford MTN and Airtel shares will afford shares in an agro-processing company he strongly associates with,” he says.