RWANDA MAY 2015 IPO: IT IS A CRYSTAL CLEAR FLYING KISS INVESTORS ARE BOUND TO CRY AND THIS IS WHY
Rwanda is a
small mountainous country in the middle of Africa, it has had a stellar Public Relations
performance ever since the Rwanda Patriotic Front (RPF) took power and control
of this small Nation,
I mention RPF
because this ruling party owns the selling shareholders: Crystal Ventures which
is offering 100% of their Special Purpose Vehicle Crystal telecom owning 20% in
MTN Rwanda.
Am to use an approximate exchange
rate of 1 Rwanda Franc for 4 Uganda Shillings
IPO Details:
Opening Date: 21st May 2015
Company: Crystal Telecom
Selling
Shareholder: Crystal Ventures
Business: 20% owner in MTN Rwanda, a
Telecommunications company
Shares on Offer:
270,177,320
Percentage of
Offer: 100% (equivalent to 20% of
MTN Rwanda)
Offer price per
share: 105 RwF (UgX 416)
Minimum
application: 1,000 shares (UgX 416,000/=)
Offer Proceeds: 28,368,618,699 RwF (UgX 113 billion)
Allocation: 75% ($30m) Institutional Investors and 25% ($10m) Retail Investors
Closing Date: 5th June 2015
Listing Date: 17th July 2015
I have read
through their prospectus which reiterates the Rwandan PR machine savvy (a very
good skill by the way) and below, after a deeper look into this Telecom CRYSTAL
BALL, is why I think investors in this IPO are bound to cry, later rather than
sooner:
1.
IPO price Valuation- 105 RwF
The real financials of this IPO lay somewhere
else that is MTN Rwanda, and a glance at their 2014 books points to a 6 billion
Rwanda Franc (24 billion Ugand Shillings) profit, therefore for the Crytsal
Telecom 20% we are talking of 2014 4.8 billion Uganda shillings in profit with
an asking price of 113 billion Uganda shillings for that 20%; ordinarily
companies are valued at X10 their earning, meaning they give the investor at least
10 years to recover their money, this would come to maximum 48 billion UgX-
paying 105 RwF where one could pay 45 RwF is something to cry about especially
knowing that each share worth 105 RwF earned 4.5 RwF as at end of 2014 but wait
what about the equity statement
2.
The Equity Statement- depleting retained
earnings
MTN Rwanda had a profit of UgX 24 billion and
paid a record dividend for 2014 of UgX 42 billion, there are no prizes for
guessing why Crystal Ventures the selling shareholder was paid around UgX 6
billion in dividends just before they exit the shareholding; of-course the 18
billion balance came from retained earnings.
This is clearing out before, it’s a like a
house seller digging up and going off with the tile works and other house
finishes, you would definitely cry if such a house is sold to you, Statement of
Equity is where business owners wealth is built over time- remember the basic
accounts: Assets = Capital/Equity + Liabilities, with this in mind your
pointing to Liabilities filling the gap. Of-course all this was achieved with
the 11th May 2015 Shareholders agreement, typical white caller heist
on a ‘to be sold company’ asking for $41m after all those pay outs, the
shareholder agreement between Crystal Ventures nd MTN Group gives a hint.
3.
The Shareholders’ Agreement preparing for EXIT
Crystal Ventures and MTN put pen to
paper on a shareholders agreement,
in their Crystal Ventures management fees it was earning annually
alongside MTN group going forward is terminated, you wonder why not pass it on to the next ‘holders’
whose sole business will any way remain
holding and managing the 20% stake in MTN Rwanda; this is a lost income on incoming holders as in the corporate world management fees are a dividends which attracts
minimal taxes, we are talking about UgX
1.5 billion in management fees paid to Crystal Ventures in 2014 alone which is 25% of their earning per share- it’s
no more anymore all goes to MTN
Rwanda.
There is even no dividend policy
agreed other than the obvious that dividends
will be paid out of profits, don’t forget dividend from MTN Rwanda is the sole source of income for
Crystal Telecom
This exit reason for crying is the
loss of corporate power and clout of Crystal
Telecom going forward, without the backup of the ruling party’s business entity who will reign in MTN group in
how it manages MTN Rwanda- No one,
the agreement tells of behind the scenes negotiations sacrificing management fees income for depletion of
retained earnings- welcome to the
world of corporate power dealing; why then not List MTN Rwanda directly
4.
Why not LIST MTN Rwanda instead! ‘The Double Tax
trap’
This IPO arrangement will ensure
shareholders are unnecessarily double taxed why else do you have the concept of group companies!!!, first at MTN
(corporation tax and withholding tax on dividends) then once again at
Crystal Telecom; my gut tells me MTN Group did not accept this- to be listed
directly so they have more leeway to freely do stuff like management fees, therefore this is like a
flying kiss- the other person intends it (ownership in MTN) but it’s
never felt, like a simple corporate action of converting debt into equity could
wipe out the distant shareholders
who by now will be scattered and have no clout whatsoever,
Crystal Telecom will be a helpless orphan of a formerly powerful and rich parents- I would cry in that situation.
5.
Growth prospects and comparisons
MTN Rwanda has 3.9 million subscribers and made
24 billion UgX, compare this to MTN Uganda with 10 million subscribers which
made 220 billion; this points to an efficiency gap or sheer lack of depth in
the Rwandan market; these 3.9m are with 10m subscriber market- for me its seems
MTN Rwandan is a mature company whose growth will not be spectacular at-least
from the figures point of view as per net profit per subscriber plus also there
will be a lack of deliberate clout that has over the years been provided by
Crystal Ventures the ruling party, RPF’s, business arm- the only clear thin
advantage is delinking RPF holding in MTN Rwanda to the Public
Muhimbise’s last
Word
The above 5 points would make me cry, so no
flying kiss from me but I like and appreciate the spirit in which Crystal Ventures
cedes its MTN Rwanda holding to the public, it would nice along the way for MTN
to do a share swap to allow real direct ownership,
The $41m to Crystal Ventures will allow it to
deploy capital elsewhere as it says plus add depth to the nascent Kigali based
Stock market
By
Andrew Muhimbise
Retail Investor
based in Uganda, Rwanda’s friendly neighbour
