By Mauri Yambo
Stanbic Bank Uganda has announced the results of its recent IPO, which ran from Friday, November 24th to Friday, December 22nd 2006. The IPO was part of the larger move by the bank to list all of its 5,118,866,970 issued shares on the Main Investment Market Segment of the Uganda Securities Exchange (USE) in Kampala.
A total of 37,449 investors applied for the equivalent of 3 billion shares. However, only 1,023,773,394 shares, representing 20% of the issued share capital, were involved in the IPO. These were offered at 70 Uganda Shillings (UShs) per share, the equivalent of Kenya Shillings (KShs) 2.85 or 4 US cents. The IPO thus attracted a 200% over-subscription. Out of the 37,449 applicants, there were 15,488 Ugandan individuals and 407 Ugandan institutions. There were, in addition, 20,091 non-Ugandan individual investors and 1,463 non-Ugandan institutions.
The prospectus had indicated that the objective of the Stanbic listing was, broadly, “the economic empowerment of the Ugandan public,” and more specifically the promotion of “share ownership particularly among the people of Uganda.” Preference was clearly going to be given to individual Ugandan investors. Not surprisingly, each Ugandan individual (some 15,452 individuals in total) who had applied for up to 2,150,000 shares has been allotted all the shares applied for. The remaining 36 individuals, who had applied for more, have also be allotted 2,150,000 shares each.
The other three categories of investors have been lumped together and each applicant has been allotted the shares applied for, up to a maximum of 109,500 shares. It seems that employees of Stanbic Bank Uganda have been treated along the same lines, even though the prospectus had reserved for them 1% of the offered shares – some 51,118,670 shares in all.
While Ugandan individuals bid for shares worth UShs 41.1 billion, non-Ugandan individuals applied for shares worth UShs 56.1 billion. And while Ugandan institutions applied for shares valued at UShs 30.7 billion, their non-Ugandan counterparts applied for shares worth a total of UShs 82.3 billion.
The allotment formula has ensured that the 10% shareholding which the Ugandan government was disposing of through the IPO has shifted into the hands of individual Ugandans. That did not happen by chance but by government design; but was ultimately made possible by the fact that enough individual Ugandans applied for the requisite number of shares. Thus, only the 10% offered by the Standard Bank Group of South Africa has been allowed to pass into the hands of the other three categories of applicants, including Ugandan institutions.
It is a distinct possibility that Ugandan institutions would have been used to keep “within Uganda” any portion of the 10% offloaded by the government which individuals might have failed to mop up. As it turned out, however, their participation has kept even more of the entire 20% on offer within Uganda – at least for now. Secondary market dynamics might significantly change this initial picture, and should not be interfered with by any authority. In any case, such interference cannot go on for long with impunity.
Available evidence suggests that most individual investors in Kenya had applied for between 1,000 and 10,000 shares. This means that each will receive all the shares applied for. For the first time since the KenGen IPO last year, there will be no refund cheque for such investors to queue for. They will still have to queue, though – for their share certificates. It is not clear how many Kenyan individuals applied for 109,500 shares or more, but the number is probably significantly greater than the 36 reported for Uganda. One suspects that most individual Ugandan applicants were also in the category of 1,000 to 10,000 shares. However, the next such offer might witness many hitherto small but determined investors bidding for up to a 30,000- to 50,000-share ceiling. This is how the East African securities market is going to grow – one interesting step at a time.
Stanbic Bank Uganda is refunding some UShs 140bn – the equivalent of KShs 5.7bn or US$ 81.5 million – to big institutional and individual applicants within and outside Uganda. That refund happens to be larger than the amount which the Kenyan government has just received from its disposal of 91,999,220 shares in Mumias Sugar Company, at KShs 49.50 per share. A large chunk of the Stanbic refund most likely is on its way back to Kenya, there to await the next IPO or to be endorsed to investment banks and brokers for the purchase of more Stanbic shares when Stanbic’s admission to the Official List of the USE takes effect on Thursday, 25th January, 2007 – the very same date when secondary market trading in the shares is scheduled to commences at the USE.
Those shares are likely to be trading at UShs 210 (KShs 9/-) or higher within a few days or weeks. And if that happens, at least 36 individual Ugandans will be “instantly” richer by US$ 184,550. But the other investors will not be doing badly themselves – in terms of their initial investments, if not relatively speaking.
A number of lessons will be learnt from, or reinforced by, the Stanbic IPO, which (incidentally inspired by the KenGen IPO) has emphatically set a new regional standard for offloading state-owned assets to the investing public. This is a standard very likely to be replicated in future Ugandan and Tanzanian IPOs – perhaps even more stringently in Tanzania.
The first lesson is that while the rich do get richer, the poor and the not so rich can also get richer! They can be visibly enabled to grow their own liquid assets even from very humble beginnings, and to be materially better off. When the ship sets sail, they can be on the ship – not forlornly waving at the water’s edge. Consequently, it must be government policy that the benefits of price discovery at the stock market quite deliberately accrue to individual investors in general – and to the small investor in particular and in full. Governments should not be in the business of making companies rich at the expense of the people. In large IPOs, therefore, an allocation formula which reserves a portion to institutional or big investors and thus necessitates refunds to small investors should be classified as an intentional economic crime.
Second, and related to the first, state-owned assets being disposed of through IPOs should in the first instance be offered to individual citizens. This does not lock out other investors. They should be at liberty to buy the shares when post-IPO trading begins at the stock exchange; and thus to be active, but not the only, participants in price discovery. In any case, IPOs are hardly large enough to satisfy the volume needs of institutional investors, and yet are small enough for them collectively, if permitted, to lock out small investors – long-term! This is true considering that while small investors do not typically hold on to their shares for long – unrelenting pressures on the household economy do not allow them to do so – large and institutional investors do!
Third, private sector firms should nevertheless have a free hand in designing their IPOs in order to protect their interests. Clearly, however, common sense must prevail here – as has happened in the Stanbic IPO, and in the Scangroup, Equity and Eveready IPOs before that. The interests of their various stakeholders, and the stock market as a whole, must also be taken into account.
Fourth, the book-building approach, successfully resisted by public opinion during the KenGen IPO, should never be allowed.
Fifth, in stock-market investing, there are many rules-of-thumb we should know, but these five are worth stating here: (a) the early bird catches the worm, (b) the long-term investor tends to recoup his/her short-term losses or costs, and to thrive, (c) your gains are in proportion to the risks you are willing and able to take, (d) the long-term security of investments comes not from owning shares in one or two companies, however solid, but in wide diversification; that is, in building a progressively larger portfolio, and (e) treat your portfolio with the same care and attention as the ardent pastoralist treats his or her livestock, and you will realize the same compounding effect.
Sixth, while we say, “THREE CHEERS TO UGANDA!”, it has not escaped attention that the biggest beneficiaries of IPOs continue to be the initial shareholders who remain with the largest chunk of a company after small investors and others have made it possible to discover its true value per share. In the Stanbic case, the IPO involved only 20% of all issued shares; but the market value of the other 80% will now be known, though it remains squarely in the hands of Stanbic Africa Holdings Limited, a subsidiary of Standard Bank Group based in South Africa. From this angle, the 20% offer looks pretty miserly – even usurious. Future IPOs should be placed at the 30% to 40% range.
Finally, the ordinary Kenyan investor in Stanbic will now have to learn to track his/her investment not simply in terms of market price, trading volume and P/E but also in terms of the foreign exchange implications of investing abroad. In a globalizing world, this is an aspect of learning that will come none-too-soon, and will be of great benefit in the long run. Indeed, Ugandan and Tanzanian investors, not to mention Somalis and Ethiopians and perhaps Rwandese and Congolese, already involved in the Nairobi Stock Exchange are generally farther up the learning curve than Kenyans in this respect. However, catching up should not be hard to do for Kenyans at home – who have hitherto been more insular.
