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Airtel Uganda IPO falls short as investors shun shares for bonds

Indian billionaire Sunil Mittal’s Airtel Uganda Ltd. failed to sell about half of the shares on offer in its initial public offering as investors stayed away, preferring high-yield government bonds.

Airtel said it managed to raise 211.4 billion shillings ($56 million) after selling 54.5% of the 8 billion shares on offer. Retail investors bought just 0.3% of the IPO. Shares were unchanged at 100 shillings on its debut on Tuesday.

Government bonds in the East African country yield as much as 15%. By comparison, shares of Airtel’s rival MTN Uganda Ltd. have dropped 14% since its IPO in 2021. Investors have also been wary after Uganda enacted a draconian anti-LGBTQ law, prompting US President Joe Biden to withdraw the nation’s preferential trade access.

Investors may have opted for less risky government securities while disregarding the future value of the stock, the Uganda Security Exchange’s Chief Executive Officer Paul Bwiso said in the nation’s capital, Kampala.

“It comes down to financial literacy, understanding the asset classes,” Bwiso said. “If I buy Airtel today, can I in two years consistently get a dividend like I would get an interest return from my fixed deposit from my market fund or from treasury bonds?”

The demand for Ugandan government bonds maturing in 2033 exceeded the amount on sale by eight fold in an auction on Thursday.

President Yoweri Museveni’s government four years ago ordered wireless companies to sell 20% stakes to local investors in a bid to deepen the market.

The state-controlled National Social Security Fund bought a 10.55% stake, according to Airtel.

A decision by the company to separate its mobile-money business also played a role in the undersubscription, according to Centenary Bank financial markets head Benoni Okwenje.

African telecom operators have been devising plans to capitalize on their lucrative mobile-money businesses. TPG invested in Airtel’s unit valuing it at $2.65 billion in 2021, and more recently MTN sold a minority stake of its fintech business to Mastercard valuing the business at $5.2 billion.

The company has up to three years to sell the outstanding shares, said Robert Baldwin, CEO of Crested Capital, the lead brokerage for the offer. The IPO was successful because it was meant to pay existing shareholders and the company has already done capital investments, David Birungi, Airtel Uganda spokesman, said in a statement. Bloomberg

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