Thursday, May 28, 2015


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

Andrew Muhimbise

Retail Investor based in Uganda, Rwanda’s friendly neighbour