Independent Financial Analyst (PHOTO/Courtesy).
KAMPALA – In the Vatican, at a point in the course of the canonization of a saint, there’s a long-standing tradition of appointing an official to go in search of evidence that speaks to the contrary of the godliness of the person in question; to determine whether to proceed with the cause for sainthood or not. This official’s title— Devil’s Advocate.
The Devil’s Advocate’s testament is not popular among the average believer, but is necessary for the canonization being as it sieves out spurious claims to sainthood, and presents an alternative perspective of the ‘servant of God’ to be venerated.
In similar canonical fashion, MTN Uganda is issuing its Initial Public Offering (IPO) which is basically its first listing on the Uganda Stock Exchange (USE) on 6th December 2021.
Much is being said about this issue in a colourful way as expected.
However, this does not give the prospective investor the full picture of the company to help them make an educated decision—to buy the IPO or not. It doesn’t help that the elite are singing kumbaya with the company.
That’s where I step in to play Devil’s Advocate—tough job, but someone has got to do it: To level the playing field and give a holistic picture to the aspiring shareholder so that they get an understanding of what they’re investing into.
MTN Group Limited is the biggest telecommunications company in Africa. It was registered in South Africa in November 1994.
In Uganda, the company has been operational for 23 years; and has an estimated 15 million subscribers. It therefore comes as a surprise to many that MTN is not listed on the Ugandan bourse; seeing it’s the biggest taxpayer in the country.
“Last year June 2020, the Government of Uganda through Uganda Communications Commission renewed the National Telecommunication Operator Licence of MTN Uganda and thus extending its stay in Uganda on condition that they would sell 20% of its shares to the public of Uganda”: Thus reads a statement on MTN Uganda’s official Twitter page.
Unmistakably, MTN Uganda was force-fed the idea of listing on USE as a condition to get its licence renewed.
Before I let the herd out of the gate, it should be known that IPOs are issued through a process called book-building which involves consulting the who’s whos of the business world as the banker to the issue—Investment bank, tries to determine the price per share.
This means, the most powerful businessmen are going to buy the IPO; therefore it’s imperative to make a personal assessment and not to solely buy the IPO because the rich are buying into it, being as there’s a general misconception that the loaded know something the not so loaded don’t.
MTN group operates as one block and consolidates a summary of the group’s financial statements, and reports of all its subsidiaries and controlled entities in its annual reports compiled for the last day of the year—31st December; with developments on all its entities enveloped as a single unit. Therefore, it [MTN] has got to be examined as one entity.
To start with, I wouldn’t buy the MTN Uganda IPO because MTN has been involved in a slew of nightmarish lawsuits. The most hideous accusation brought against MTN: A terrorism claim filed by hundreds of US soldiers alleging that the company paid terrorist groups [Al Qaeda, Taliban] over $100 million so that it’s cellular towers would not be targeted for destruction. This lawsuit was filed in the US in December 2019.
In its defence, MTN asked for the case to be thrown out because it claims the “complaint doesn’t allege any conduct by MTN that violated the Anti-Terrorism act” and that it [MTN], doesn’t operate in the US; therefore they have no jurisdiction over the company!
Secondly, in 2013, a lawsuit was filed against MTN by Turkcell and East Asian consortium relating to an operating licence awarded to MTN Irancell in 2005.
Allegedly, MTN bribed her way into getting a licence to be the second telecom operator in Iran—getting a 49% stake in Irancell thoroughly bamboozling Turkcell out of the deal and yet it was perceived then that Turkcell had bagged the contract.
These confessions were made by a displeased former MTN executive—Chris Kilowan who at the time was working with Irene Charnley (owner of Smile Telecommunications Ltd) after he claimed that $200,000 of his own money that he used to bribe authorities to make the deal happen, wasn’t reimbursed by MTN.
In Nigeria, MTN was subpoenaed by regulatory authorities for failing to switch off unregulated SIM cards for 5.2 million users. The fine was placed at $5.2 billion, that is, $1,000 for every unswitched off SIM card. Later on 10th June 2016, MTN Nigeria resolved to pay a sum of 330 billion Naira (equivalent to 25.1 billion Rand) and other expenses to be paid over a period of three years placing the whole sum between $808 million and $1.6 billion.
In 2018, the Central Bank of Nigeria claimed that MTN Nigeria had repatriated dividends to a tune of $8 billion between 2007-2015— a sum it [MTN] needed to refund to the Central Bank. Later, MTN was directed to reverse placement of shares at a cost of $52.6 million at the time.
Correspondingly, the Attorney General of the Federation of Nigeria brought charges against MTN to the sum of $2 billion for failing to pay taxes for equipment and payments to foreign suppliers between 2007-2017. In a turn of events, the Attorney General dropped the case.
Let it be known that for the year 2020, no dividends were declared by MTN to shareholders for the half and full year ended 31st December 2020. Intriguingly, in 2019, the company registered a profit after tax of R10629 million ($714 million) and paid gross final dividends of 355 cents per share and an interim dividend of 195 cents per share for the half-year period.
It is wherefore astonishing that in 2020 when the company’s profits after tax spiked by 85% to R19647 million ($1.3 billion), no dividends were declared! Heaping misery on the shareholders who could have used that extra income from their investment to survive through the prolonged lockdowns considering 2020 was painstakingly a year of confinement.
In the company Director’s report for the year ended 31st December 2020, it is declared MTN registered a profit after tax of R19647 million ($1.3 billion), while the Director’s report for 2019 avows R10629 million ($714 million) as the profit after tax for 2019.
Surprisingly, in MTN’s Director’s report for the year ended 2020, the company expresses that their profit for the year 2019 was R10829 million ($727.4 million). Did the MTN group inflate their profit after tax between the Directors’ reports of 2019 and 2020 by R200 million ($13.4 million) to make them look more profitable?
In Rwanda, MTN has had run-ins with the government over the dismal quality of its call services. The government has proceeded to threaten sanctions if MTN fails to comply with the directives to rectify it’s poor network, call connection issues, drop and silent calls. This was an outcome of the public raising concerns over MTN’s miserable call and internet services.
In Uganda, MTN was accused of not fully declaring their transactions and undercutting the government in taxes and revenue. This led to the expulsion of the company’s CEO in 2019.
The long rap-sheet stacked up by MTN, slurs the image of the company, making it undesirable for investment as it questions the integrity of the corporation and its ability to do business ethically.
It also makes meaningful and strategic mergers hard to pull off since other entities are aware of their brand names and values and would therefore find it hard to forge synergies with companies that have questionable standards, and are dogged by allegations of terrorism, bribery and the like.
The year on year fines meted out in billions of dollars, corrode the profits of the company and dividends that would otherwise be assigned to shareholders.
The bottom line is that shrewd investors invest into the philosophy, business model, product-line, credibility, management and prospects of a listed company and not the white noise that accompanies IPOs because these go a long way in determining the growth, profitability and longevity of a business— directly impacting the share price of an entity and gains that trickle down to the investor.
Therefore, anyone significantly looking to invest in the stock-markets has got to exhaustively investigate the companies they are interested in, weighing the benefits against the drawbacks and then placing their money where they believe it will grow over time.
Personally, I believe that MTN’s listing on USE is not going to have a roaring aftermath because stock exchanges mirror the economies in which they are in; and MTN’s crafty history will dispirit smart investors.
This listing is not going to turn Uganda’s fortunes around if the economy is in Gehenna—Show me a strong exchange in a weak economy!
Mark Kidamba, an Independent Financial, Investment analyst.
Twitter: @m_kidamba
