How Much Will Kenyans Need to Pay for MTN Uganda’s Free IPO Shares?

MTN Uganda is offering free shares to Kenyan investors in a bid to motivate them in buying stocks in the telecom firm. MTN Uganda yesterday opened an initial public offering (IPO) at $250-million yesterday.

South Africa’s MTN Group is currently selling 4.47 billion shares in its Ugandan arm at a price of Ksh6.20 ($0.056) per share, or 200 Ugandan shillings.

Now, MTN is offering free shares of between five and 10 units for every 100 units allocated in an effort to make the IPO successful, which will mean gathering applications for the purchase of at least 1.1-billion shares.

According to Business Daily, this represents an effective discount of five to 10% of the purchase price, assuming an investor receives a full allocation and incentive shares. There is currently no allocation quota, but Ugandan investors will be given priority in case of oversubscription. Meaning that Kenyan investors have unlimited room to purchase stocks.

“As part of the offer, and in alignment with the objective of broadening Ugandan shareholding in MTN … the selling shareholder will transfer incentive shares at nil cost to the categories of qualifying applicants that apply for and are allocated the sale shares,” MTN’s prospectus says.

“Accordingly, eligible applicants will receive an allocation of sale shares which the applicants will be required to pay for and, in addition, an allocation of incentive shares which the applicants will not pay for.”

The IPO is currently open to investors from Uganda as well as from other East African countries and community members, including those in Kenya. Foreign investors can also participate in the offer.

However, institutional investors in Uganda and other East African countries will have to invest larger amounts to receive free shares.

To receive five free shares for every 100 units allocated, investors must apply for stock with a minimum value equivalent to Sh109.3-million ($986-K). To receive 10 free shares for every 100 units, investors must apply for stock worth a minimum of Sh5.5-billion ($49.6-million).

Institutional investors stand to gain the largest discount with the IPO, one which could mean hundreds of millions of dollars in savings. These types of incentive shares are rare for an IPO in the region and make it clear that MTN is determined to ensure the success of the offer.