MTN Nigeria Listing: Matters arising

By Jude Fejokwu

MTN Nigeria finally listed 20.4 billion shares on the Nigerian Stock Exchange (NSE) (after being compelled to do so by the Nigerian government as part of a regulatory settlement) at a price of N90.00 ($0.25) on May 16, 2019.  The listing was part of the punitive measures taken by Nigeria’s telecom regulator in the second half of 2015 due to the refusal of MTN Nigeria to fully comply with its directive to deactivate unregistered sim cards.

Despite the involuntary nature of the listing, the Nigerian Stock Exchange is celebrating the listing as a positive and immediately added MTN Nigeria to its Premium Board.  Developments since listing of MTN Nigeria’s shares less than two weeks ago have been anything but positive.  Let me kick off with trading related issues.

MTN Nigeria refused to do an Initial Public Offer (IPO)and instead opted for Listing by Introduction.  All this does is alienate and frustrate investors while quickly enriching existing shareholders of MTN Nigeria as a private company prior to listing.  This has prevented most investors from being able to acquire shares as the privileged connected few do cross deals among themselves and shut-out everybody else.  Only nine months ago, MTN listed in Ghana and did an IPO over a two-month period prior to listing.  I guess this is one of the differences in actions you get when a listing is voluntary compared to involuntary.      There are a lot more instances of foreign companies listing their subsidiaries on other African stock exchanges but, reluctant to do so on the NSE.  For example, Standard Chartered Bank is listed in Kenya & Ghana and not Nigeria.  The same scenario would have applied for MTN if not compelled to do so by Nigerian regulators.  The company that appears not to need capital given its lack of interest in doing an IPO, goes ahead and immediately borrows N200B from seven Nigerian banks after borrowing N200B from 12 banks just nine months ago.  N400B increase in debt capital in less than a year while not seeing the urgent need for equity capital with a listing on the horizon.  Who is really fooling who?  

The free float rule to list on the Nigerian Stock Exchange used to be for a minimum free float of 25%, then, changed to a minimum free float of 20% of issued share capital not long before the listing of Dangote Cement in October 2010.  Dangote Cement listed with less than 7% free float and remains there till today on average.  The excuse then was about listing the difference on the London Stock Exchange and Dangote Cement was given an exemption from the minimum free float listing requirement that has been continually extended until the rule was changed to include “the value of its free float is equal to or above N40 billion on the date The Exchange receives the Issuer’s application to list.”  This rule amendment allowed Dangote Cement to no longer be in violation of Exchange free float rules and has also allowed MTN Nigeria to list despite being not having a 20% minimum free float to enable balanced trading.  The danger of this is companies just have to list at a high price with an unfavorable free float (intentional hoarding of shares) relative to outstanding shares to get listed on the NSE.MTN Nigeria’s free float realityis estimated at approximately 6%.  Ironically, the two companies that are listed and trading with free floats significantly less than 20% (Dangote Cement & MTN)are on the NSE’s Premium Board and are the two most capitalized companies on the NSE and now account for 44.5% of the total market capitalization of the Nigerian Stock Exchange as at May 27, 2019.  What kind of market can trade without avoidable manipulation when two stocks account for almost half of the market’s total capitalization?  You want to change the fortunes of the NSE positively?  Keep bidding up the price of Dangote Cement and MTN Nigeria and mission accomplished.  Does this sincerely resemble a market moving forward or just moonwalking?         

Over the first three (3) trading days of MTN Nigeria’s listing, only 134 deals could be mustered for a total of 105,301,759 shares traded.  On day six of trading alone, 1,600 deals could be mustered for a total of 34,226,952 shares traded.    Over the first three days, the average trade was for 785,834 shares while on day six alone, (after existing shareholders had made in excess of 75%) the average trade was for 21,392 shares.  Immediately the smaller investors were allowed into the trading room, MTN Nigeria’s share price has been falling while the smaller investors are left holding the short end of the stick on purpose.  This is a similar experience investors should expect when the NSE’s demutualization is completed and its shares are listed on the NSE.  A “pump and dump” illiquid scenario to please the few and upset the many may become the norm on the NSE when prominent companies list unless rules are restructured to favour the market and not ‘powerful’ investors directly or indirectly.

Now for non-trading related issues:

• MTN Nigeria’s fiscal year 2018 annual report is not yet available on its website.  No company should be allowed to list on any African stock exchange without publicly releasing its FULL annual report for the most recently concluded fiscal year on its website at least thirty (30) days before the intended listing.  
• The Nigerian government, NSE and the telecom regulator should find a way to get Globacom (a telecom company with a Nigerian as the majority owner) to list if the listing of MTN Nigeria is to be a watershed moment.
• Nigeria’s financial crimes ombudsman has written to MTN Nigeria requesting information and documentation relating to the listing of its shares on the NSE.  The Nigerian Stock Exchange’s most prominent listing in 8.5 years is now the subject of an untoward investigation.  The letter was received on May 23, 2019, the same day, MTN Nigeria’s shares started becoming more readily available to all and sundry.
• Why will a company be allowed to borrow and conclude debt capital raising worth approximately 11% of its market value at listing at the same time of initial listing of its shares?  This is something investors should have been told before listing as these are investment defining corporate actions.

The two largest companies on the Nigerian Stock Exchange are: Dangote Cement and MTN Nigeria.  The former is chaired by Aliko Dangote that was the Chair of the NSE Council and owns four companies on the NSE.  He passed the torch of Chair of NSE Council to Aig-Imoukhuede (co-owner of Access Bank) whose bank just gobbled up Diamond Bank, founded by the Chair of MTN Nigeria – Pascal Dozie.  MTN Nigeria has raised N400B over the past nine (9) months through two syndicated loans and Access Bank has been involved in both (first time through Diamond Bank and second time through the new Access Bank.)   Unsurprisingly,  Aig-Imoukhuede attended the listing ceremony of MTN Nigeria at the NSE on May 16, 2019.

The NSE should do the following to prove to the general populace that its allegiance lies with them and not the powers that be:

1. Release the names of all brokerage firms that were involved in buying and selling MTN Nigeria’s shares from May 16 – May 22, 2019.  Release the actual names (Stanbic Custodian as counterparty name is unacceptable) of the buying and selling party for ALL TRADES across the five trading days specified.  I assure you many people will have heart palpitations on both sides of the aisle: regulators and privileged investors alike.    

2.  Free float worldwide is all about quantity of shares and not about market valuation.  Let us go back to the basics.  The NSE should remove this rule amendment immediately: “the value of its free float is equal to or above N40 billion on the date The Exchange receives the Issuer’s application to list.”  The price of a company’s stock should not be brought into the free float discussion.  The core and only matter should be number of shares freely available to trade relative to total outstanding shares.

3. Amend the rules so that any company with an intended or expected listing market value in excess of $500m (N180B), can only list by IPO.  Listing by Introduction will not be allowed for companies with listing valuation expected to exceed $500m.  The NSE and SEC should never have approved a listing for MTN by introduction.  The regulators had the leverage as this is an involuntary listing and they let it go to waste!

MTN Nigeria is dominating the Nigerian telecom industry; has a dominant stake on the NSE (20%)  and is dominating the headlines in scandals ranging from disobeying regulatory directives, exporting cash to its parent market without required documentation and underpaying taxes by $2B to the Nigerian tax authority.  MTN Nigeria has sued the Attorney General of Nigeria for N3 Billion in regards to the underpayment of taxes accusation.

The cycle of serenading the BAD and vilifying the GOOD in Nigeria appears to be alive and well.  MTN Nigeria’s listing has been added to a long list of what is wrong by action while espousing what is right by words.

The DANCE is alive and well.  The DRAMA is still unfolding; grab your popcorn and take a seat.

*Fejokwu first published this article at http://judefejokwu.blogspot.com/ under the title MTN NIGERIA Listing: Let’s do the DANCE; the DRAMA will have to wait.