Govt seeks big IPO rush, but who buys the shares?

05Jun 2017
Aisia Rweyemamu
The Guardian
Govt seeks big IPO rush, but who buys the shares?
  • Economic and stock market analysts caution that in the face of an ongoing cash and credit crunch nationwide, massive under-subscription by telecoms and mining firms is a big possibility

AS the government pushes for the mandatory listing of over a dozen telecoms and mining companies on the Dar es Salaam Stock Exchange (DSE) potentially worth trillions of shillings in the next two months, there is growing concern that any initial public offerings (IPOs)....

could flop at this moment in time due to an ongoing cash and credit crunch afflicting the national economy.

Well-placed sources close to the local stock market told The Guardian that Vodacom Tanzania Plc's recently-launched IPO could be substantially under-subscribed as a result of an economy currently hobbled by sharp declines in money supply growth and overall liquidity.

Vodacom launched its IPO in March with the aim of raising 476 billion/- by selling 560 million shares to the public, but had to extend the offer period by three weeks to give local investors more time to fully take part.

The official announcement of the firm’s IPO results has therefore been delayed, but is expected to be made over the next few days.

Still, sources close to DSE believe the timing of the IPO should have been properly considered from the get go.

"This was a mandatory IPO, so Vodacom had no say in the timing of the share sale. The timing is obviously very wrong because companies usually launch IPOs when there is good liquidity in the market. Right now, there is very tight liquidity," said one broker.

Apart from Vodacom, Bharti Airtel and Tigo Tanzania have also submitted their prospectuses to the Capital Markets and Securities Authority (CMSA) and are awaiting approval from the regulator to comply with the mandatory DSE listing rule for telecoms companies.

As the telcoms continue to struggle to successfully launch their IPOs, the Ministry of Energy and Minerals announced last week that mining companies operating in the country also have to list on the local bourse by August 23 this year.

The ministry, when presenting its official 2017/18 budget proposals to parliament in Dodoma, said all holders of special mining licences will have to offload at least 30 per cent of their shares on the DSE as stipulated in the Mining (Minimum Shareholding and Public Offering) (Amendment) Regulations 2016, which were re-issued in February 2017.

It named 12 mining companies that are thus compelled to meet this requirement by the August 23 deadline. They are Bulyanhulu Gold Mine Limited, Pangea Minerals Limited (owner of Buzwagi Gold Mine), Geita Gold Mine Limited, North Mara Gold Mine Limited, and the state-run STAMIGOLD Company Limited.

Others are Williamson Diamonds Limited, Mantra Tanzania Limited, El-Hilal Minerals Limited, Kiwira Coal Mines Limited, Tanzania China International Mineral Resources Limited, Uranex Tanzania Limited, and Dangote Industries Limited.

Various other economic analysts have also cautioned that such mandatory bourse listings during this difficult period in the economy could very well hit a snag.

Prof Ibrahim Lipumba, a leading Tanzanian economist and politician, told The Guardian that this is “obviously” not the right time for telecoms and mining companies to offload their shares at once on the DSE because members of the public and a good number of potential institutional investors simply don’t have the money to buy.

The country's laws do not allow foreigners to take part in local stock market IPOs. 

Said Prof Lipumba: "A successful IPO depends on the availability of savings by members of the public, but the current situation shows that citizens have been hit hard in their pockets by the tough economy."

"People often invest in the stock market when they have enough savings and there is strong liquidity in the economy. The current economic situation in Tanzania clearly indicates that this is not the right time for a flood of IPOs on the DSE."

Likewise, Dr Bill Kiwia, head of the banking and financial services department at the Institute of Finance Management (IFM) in Dar es Salaam, told The Guardian that more needs to be done to ensure the planned IPOs are not massively under-subscribed.

Dr Kiwia said the government has the responsibility to create a friendly environment for both retail and institutional investors in Tanzania to buy the listed shares on the local bourse.

"The investment environment still poses a challenge and acts as an obstacle for local investors to benefit from the country's resources and emerging opportunities such as the telecoms and mining IPOs," he asserted.

Stock market analysts say the announcement of Vodacom's share sale is being anxiously awaited to act as a barometer of the ability of the local market to absorb an IPO rush at this moment in time.

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