How NSSF Saved Airtel Uganda’s Lukewarm IPO Amid Investor Aversion

Airtel Uganda, the second-largest telecommunications company in the nation, recently found itself in the position of having to offload more than half of its shares in its initial public offering (IPO) to the National Social Security Fund (NSSF) as a result of its inability to attract sufficient investor interest in Uganda’s biggest-ever IPO, which had a poor reception

The IPO, which concluded on October 27, 2023, marked Uganda’s largest ever offering. It entailed the sale of 8 billion shares at 100 shillings each, effectively valuing the company at Shs 4 trillion. However, the market’s response was rather tepid, with only 3.2 billion shares being subscribed by the general public as of October 26.

In a last-minute intervention, NSSF intervened by acquiring 4.8 billion shares, constituting 50% of the IPO stock and 10% of the company’s overall equity. NSSF, a statutory body tasked with overseeing the retirement savings of private sector employees in Uganda, boasts a membership of over 2.5 million individuals and assets exceeding 15 trillion shillings. Their decision to invest in Airtel Uganda was grounded in the company’s robust financial performance and its promising growth prospects, as well as the potential for dividend income and capital appreciation.

Airtel Uganda operates as a subsidiary of Airtel Africa, a prominent mobile services provider spanning 14 African nations, with over 25 years of presence in Uganda. They command a substantial market share with 14.3 million active subscribers, representing 47.3% of the market. In the fiscal year ending on December 31, 2024, the company posted revenues of 1.6 trillion shillings, earnings before interest, taxes, depreciation and amortization (EBITDA) of 888 billion shillings, and a net income of 326 billion shillings. Furthermore, the company prides itself on having the most extensive and swiftest 4G network in the nation, reaching more than 90% of the population.

Despite these impressive statistics, Airtel Uganda grappled with various hurdles in garnering investor interest for its IPO. One significant obstacle was the unfavorable investment climate in Uganda, marked by elevated inflation, high interest rates, limited domestic savings, an underdeveloped capital market, and political uncertainty.

Inflation in Uganda averaged 3.5% during FY23, with a peak of 10.7% in October 2022, stemming from food price shocks and currency depreciation. Interest rates remained elevated throughout the year, with the central bank’s policy rate hovering around 10% for most of FY23 and commercial bank lending rates averaging over 20%. Domestic savings remained at a low level, comprising approximately 13% of GDP, a figure below the regional average of 17%.

The capital markets in Uganda exhibited signs of underdevelopment, characterized by the presence of only 18 listed companies and limited trading volumes on the Uganda Securities Exchange (USE). Furthermore, the specter of political uncertainty, leading up to the general elections scheduled for February 2024, may have dissuaded some potential investors from committing their funds to long-term investments.