Brokers at the Dar es Salaam Stock Exchange. PHOTO | FILE
One would have to travel far and wide to find an initial public
offering more embarrassing than that of Vodacom in Tanzania, which has
been extended for a second time; the latest extension coming almost two
months after it closed.
To understand the mediocre
handling of the sale, it is important to look into its background. The
product of an administrative fiat that telcos cede a quarter of their
ownership to locals through the Dar es Salaam Stock Exchange, the IPO
appeared rushed as the issuer – a subsidiary of South Africa’s Vodacom
Group and by extension UK’s Vodacom – sought the potential benefits of
early compliance.
These would include bragging rights,
a local identity and a nod from the government; all of which can yield
immense business benefits.
In that excitement, the
fundamentals of a share sale, including the capacity of the market to
absorb the $213 million, were ignored. And so it came to pass that
foreign investors, including EAC ones, were initially not invited to the
party before they were asked to pick up the crumbs that Tanzanians
would leave on the table.
It turned out the appetite
of the preferred guests was overestimated and now erstwhile gate
crashers can have their fill. That after loans being offered to Tanzania
civil servants to participate in the offer failed to raise demand as
much as was expected. As far as publicity, marketing and disclosures go,
the market was not primed.
Going by IPOs elsewhere,
roadshows run for at six weeks before the IPO is announced, depending on
the size of the offer. In Vodacom’s case, even the media were caught
unawares by the announcements, including the timing.
The
failure of the flotation provides a moment of reflection on the
government determination to see firms in key sectors – miners are also
required to list 30 per cent of their shares – go public.
First,
does Dar have policies in place to attract investors to the IPOs? The
failed Vodacom IPO raises serious questions about the depth of the
Tanzania capital market as a source of corporate finance.
To
back the good intentions of broad ownership, effective policies to make
markets vibrant and increase liquidity should be in place. Tanzania can
hardly claim to have those with its hesitant embrace of foreign
investors.
Granted foreigners can now entirely own a
listed company, foreign exchange controls still place a hurdle on
repatriation of dividends. Savvy investors do not put money where it
will be tied down.
Second, President John Magufuli’s
recent decrees on mining, which have just been regularised by changes to
the law, have caused uncertainty, fear of nationalisation even, that
has rattled the confidence of investors. That alone might prove to be a
big put-off for punters who would have bet on Vodacom.
It
may be too late to shelve the Vodacom sale but a rethink of the
timelines for telcos and miners to float their shares would be ideal for
now. A sustainable path would be to require the companies to commit to
listing at a later date determined in consultation with the government.
As many countries have found out the hard way, forcing investors to
prematurely take on board local players discourages new entrants and
sets the stage for infighting.
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