Vodacom IPO raises questions about EAC’s capital markets integration

The integration of capital markets in East Africa faces a severe test with the expected listing of 86 telcos and mining companies at the Dar es salaam Stock Exchange (DSE), where only Tanzanians will be allowed to participate.

The initial public offerings (IPOs) buck the recent trend where citizens of the five EAC member states – Burundi, Kenya, Rwanda, Tanzania and Uganda – were allowed to buy shares in the primary sale.

This helped investors to acquire stakes in Stanbic Uganda, Crystal Telecoms in Rwanda and listings in the Growth and Enterprise Market (Gems) at the Nairobi Securities Exchange.

Vodacom Tanzania is set to sell 560 million shares to the public this week, worth Tsh476 billion ($208.5 million) after receiving regulatory approvals but non-Tanzanians can only enter the counter when the shares start trading at the DSE.

“The move by Tanzania to lock out investors from East African countries will slow down the integration of the regional capital markets,” said David K Gathaara, managing director of Baraka Capital, a brokerage firm operating in Rwanda and Uganda.

Integration protocols

“Tanzania has a right to protect local investors in the primary market but, in the spirit of the East African integration protocols, it should have allowed other citizens from the region to participate in the IPO.” 

Tanzanian opposition leader Zitto Kabwe of ACT-Wazalendo said barring foreigners was not a good idea because of the tight liquidity in the market.

“Research would establish ways to absorb local and foreign capital. I would suggest a limitation for foreigners to buy shares against local ones,” he said.

He said barring foreigners would deny the economy foreign exchange and spawn backroom deals, where locals buy shares on behalf of foreigners.

Rwanda’s Trade, Industry and East African Community Minister Francois Kanimba said the locking out of EAC investors from the IPO was in bad faith. “That is against the spirit of regional integration,” he said.

The EAC Common Market Protocol provides for free movement of capital, labour, goods, and services.

Rwanda gives East African investors preference during flotations. East Africans have taken part in all the listings on the Rwandan bourse, starting with Bralirwa in 2010, Bank of Kigali the following year and Crystal Telecom in 2015.

In the ongoing sale of government shares in I&M Bank through an IPO, Rwandans, Kenyans, South Sudanese, Ugandans, Burundians and Tanzanians are to share 60 per cent of the shares on offer. The IPO was to close last week, but has been extended to this week to allow salaried people to participate and to compensate for delays in printing of the prospectus.

READ: I&M Bank IPO a draw for long-term investors

“Protectionism has no room as the EAC is a free trade market after each country signed the Common Market Protocol. Right now, we are working on a legal framework to remove all restrictions,” Mr Kanimba said.

High demand

Deal makers say East Africans seeking to diversify risks by investing in different markets had started making inquiries about the profitable Tanzania’s telecoms sector.

“The development in Tanzania is something you cannot forestall because it is in pursuit of their own economic agenda. However, we are still pursuing the regional integration agenda and this will not affect our aspirations,” said Geoffrey Odundo, chief executive of the Nairobi Securities Exchange.

The listing of Vodacom shares at the DSE is in compliance with the Electronic and Postal Communications Act, 2010 giving Tanzanians the right to buy 25 per cent of the shares of telecommunication companies as an empowerment strategy.

The $208.5 million worth of shares is the biggest offer ever made in the history of the DSE. The IPO is expected to take six weeks from March 6, according to the Capital Markets and Securities Authority (CMSA), which last week approved the prospectus of Vodacom Tanzania.

Some key stakeholders anticipate high demand for the IPO. Raphael Masumbuko, chief executive officer of Zan Securities, said the IPO is likely to be oversubscribed due to the reputation of the company.

“People from all walks of life have been waiting for this. We have been under constant pressure to announce when the subscription will start,” he said.

Moremi Marwa, the DSE chief executive officer, said the market had recently been performing poorly due to withholding of funds by investors awaiting the Vodacom IPO.

The DSE has a market capitalisation of around $9 billion while total market capitalisation for all the telcos amounts to $2.5 billion.

Vodacom Tanzania is the market leader, controlling 31 per cent of the market in voice business and 42 per cent of mobile money, through its M-Pesa platform.

The company has 12.4 million active subscribers, followed by Tigo with 11.6 million and Airtel’s 10.3 million. The other telcos are Halotel, which has 2.7 million subscribers, Zantel (1.4 million), Smart (881,756) and Tanzania Telecommunications Company Ltd (304,058).