Ikulileni investments IPO: What you need to know

Ikulileni Investments Plc is set to list their shares on the Lusaka Stock Exchange (LuSE) in what will be the first Initial Public Offering (IPO) of 2015. The IPO will raise a total of K354 million should the offering be fully taken up. Ikulileni will be listed under the ticker ‘Ikul’ and will become the 24th company listed on the LuSE.

Who they are

Ikulileni is an investment vehicle which currently owns slightly over 10% of shares in MTN Zambia which is a private company. They have four directors on 3 year contracts whose profiles are outlined in the slides below:

Essentially, Ikulileni will be a way for the investing public to indirectly own a portion of MTN Zambia as well as other public or private companies in the future.

The offering

A total of 13.4 million shares will be sold to the public at K26.5 per share. The proceeds will be allocated as follows:

In addition, there is a special ‘Swap Option Agreement’ in place which if exercised, would result in the acquisition of Saturnia and Barclays’ stake in MTN Zambia in exchange for shares in Ikulileni (resulting in Ikulileni holding 17.85% of MTN Zambia with Saturnia and Barclays holding proportionate shares in Ikulileni).

MTN Zambia

Last year MTN Zambia usurped Airtel Zambia (LuSE: ATEL) to become the number 1 mobile service provider by subscribers with 4.9 million (51% of the total market). Here is a snapshot of their financials compared to Airtel Zambia’s 3 year average (up to FY 2013):

MTN Zambia is well poised to take advantage of subscriber growth and increase their profitability. They are also not resting on their laurels as they are set to inject about K418 million  into everything from expanding 4G Long Term Evolution (LTE) Coverage to laying down an additional 150km of fibre in 2015. All this in a country set for above 6% economic growth and a rapidly expanding population where a mobile phone is essentially a necessity.

However, competition is set to stiffen up as the Statutory Instrument (SI) -- which prevented a 4th mobile service provider from entering the market -- expired in 2014. Airtel and Zamtel have also been investing heavily in their respective networks in order to improve performance which has proven key to growing an increasingly demanding Zambian subscriber base. MTN Zambia also has a very high gearing ratio and faces increasing interest rate and as well as currency risk in the current operating environment.

The caveat

Potential investors need to carefully read the prospectus or consult their broker/lawyer before taking part in this offering to see if they are fully compliant with the shareholder agreement (Annexure 7 in the prospectus) which contains these two clauses and others:

The opening date was May 4 2015. Closing date is May 29 2015 and the listing date is June 16 2015.