Behind MTN share offer

There is risk around renewal of its operating licence, payment of substantial spectrum fees, failure or network interruptions, and competition from other traditional and non-traditional operators in the telecommunications sector.

“Although MTN is currently the leading wireless network operator in terms of subscriber market share across fixed telephony, mobile voice and data service types, the Company faces stiff competition from traditional and non-traditional operators in the sector,” the company states in its prospectus.

“The company operates in an exceptionally competitive environment, particularly with respect to pricing, across its segments and this may adversely affect the Company’s revenue and margins. Over the last five years, a number of new telecom providers have been licensed and with the roll-out of a new telecommunications licensing framework, the industry will be reshaped in the medium to long-term.”

Moreover, the company says non-traditional players including social networking sites like Facebook (including Facebook Messenger), Instagram, WhatsApp, Telegram, Snapchat, Viber and TikTok, and modern enterprise communications applications such as Zoom, Microsoft Teams, Blue Jeans and Google Meet continue to enter the market, providing highly-nuanced and multidimensional competition, threatening its revenue streams like pre-paid mobile voice services and text messages.

MTN Uganda is also currently involved in 75 court cases though adds that none of the  litigations involved in has the ability, individually and in totality to affect its business and assets to the extent of affecting the overall viability as a going concern.

Dividend policy

But the main draw for potential investors should possibly be MTN’s current dividend policy.

“Investors will benefit from dividends (when declared by the company) and a capital gain per share depending on the performance of the Company over time and its trading activity,” says Mbire.

MTN’s current dividend policy provides that in the medium-term, the company will target a dividend pay-out ratio of at least 60% of annual profits after tax.

However, dividend pay-out ratio in any given year is subject to the Board discretion considering the Company’s cash projections, business outlook, investment plans, capital markets conditions, solvency and liquidity, tax regulations and debt covenants.

The Board may also vary the dividend pay-out ratio in a year if the accumulated reserves can accommodate an extra payment above the set ratio subject to cash availability and compliance with debt covenants.

Furthermore, the MTN’s policy is to consider declaring and paying dividends thrice a year:  a first interim dividend after the half-year results, a second interim dividend after quarter-three financial results and a final dividend in quarter-one following the release of the year-end results.

Meanwhile, the  dividends paid will be subject to withholding tax, which is borne by the shareholder, with the dividend payments to resident shareholders  attracting a  withholding tax of 10% of the gross amount, while dividend payments to non-resident shareholders  ordinarily attracting  withholding tax of 15% of the gross amount.

For non-resident shareholders, double taxation relief may apply where Uganda has double taxation arrangements with the country of residence of a particular non-resident shareholder, in which case the withholding tax rate would be 10%.

Behind decision to list

MTN Uganda now becomes the 10th domestic company to list its shares on USE which has suffered a lull in business. The last company to list, Cipla Quality Chemicals Ltd, did so in 2018.

MTN’s listing is meant to enable the telco comply with the provisions of its renewed National Telecommunications Operator (NTO) License which requires that it  lists on the Uganda Securities Exchange by June 30, 2022.

SBG Securities Uganda Limited, a subsidiary of Stanbic Bank Holdings has been appointed as the transaction advisor and the lead broker.

Upon completion, the listing will see MTN Group through its investment, MTN International domiciled in a tax haven state of Mauritius; reduce its shareholdings to 76%, equivalent to 17billion shares valued at Shs3.4trillion.

People familiar with the operations of the telco told The Independent that MTN Uganda’s step  to list on the USE is solely meant to ‘make good’ of its strained relations with the Ugandan government in which President Yoweri Museveni has always lashed out at the company for profit ‘repatriation.’

MTN Uganda’s journey started nearly three years ago as the telco sought for a new licence renewal after the expiry of its 20-year operating licence in October 2018.

The government had initially decided to charge MTN Uganda US$100million as a fee for the licence renewal before the industry regulator, Uganda Communications Commission (UCC) revised it lower to US$58milion saying the company had mentioned more planned investments worth more than US$200milllion.

However, President Museveni opposed UCC’s  decision on  grounds that MTN Uganda has reaped “vast profits” in Uganda since 1998, when it started operating, “most of which have obviously been repatriated.”

“The company’s obligation to sow where it intends to reap for the next 10 years, as well as its ability to do so are and cannot be in doubt,” Museveni said in a letter to  the  communications minister and the attorney general dated Nov. 19, 2019.