Airtel Malawi on December 24 announced it was selling 20 percent of its shares to the public through an Initial Public Offer (IPO). The offer opened on December 27. However, the move has raised speculations about the financial health of the company on social media. Our reporter, TAONGA SABOLA, caught up with Airtel Malawi Managing Director, Charles Kamoto, to establish the true position of the company.
First of all, Happy New Year.
Thank you and Happy New Year to you too.
Why is Airtel selling some of its shares?
This listing, besides enabling Airtel Malawi Limited to comply with the Communications Act of 2016, provides Malawians the opportunity to benefit from Airtel’s success story.
Listing Airtel allows us to also play our role in developing Malawi’s capital markets through the creation of additional investment opportunities for existing and new shareholders on the Malawi Stock Exchange.
We also believe that it will further enhance the company’s profile across various stakeholder groupings. Importantly, we believe that our financial performance will allow us to deliver great returns to our shareholders over time. I am hopeful that Malawians will participate in this once in a lifetime opportunity to be a part of the largest IPO in Malawi.
What exactly is on offer?
Airtel has invested in 4G in all areas of its coverage in the country, supported by fiber connectivity. This is important from a number of perspectives. The first is that we see a significant opportunity in data, last year our data revenue increased by 40 percent. This will continue into the future as smartphone penetration in Malawi is low compared to the region and is growing quite fast.
Smartphone penetration in 2019 is estimated at 35 percent versus Africa at 49 percent.
This will increase to 43 percent by 2022 versus Africa’s 70 percent. We also have a young population, with approximately 65 percent being under the age of 25. As you know this age group are fast adopters of data and combined with increased use of smartphones will likely drive an increase in the demand for data and data related products.
Financially, I will start by saying I recognise that some people may be concerned about the 2018 loss which was a result of a once off exchange loss and not a reflection of our underlying performance. In fact, we have forecast to return to a profit for 2019 and the foreseeable future.
Your prelisting statement shows a net liability position of K42 billion, which is up from K18 billion in 2018. Is Airtel in trouble?
Definitely not. On the contrary, as I have just explained Airtel is a profitable business that is doing extremely well. Our prospects are also positive given the market dynamics, our positioning and our infrastructure. This net liability is due to current assets at K53 billion and current liabilities at K95 billion.
The main driver of the current liabilities is an external loan of K31 billion from Bank of America (BoA) which is due in May 2020. This is not a concern as we have Undrawn Committed facilities in hand to cover K22 billion as well as free cash flows and funds received from the sale of the of 90 towers (K5.9 billion) which will be utilized to repay external loans falling due within a period of 12 months. Excluding the BoA loan, the net current liability as at June 2019 stands at K11 billion which is normal in telecom business.
Will potential investor gain dividends? If yes how much?
I cannot speculate on the amount of dividend. What I am able to say to you is that the dividend policy as it stands is for the company to distribute a minimum of 80 percent of its free cash flow. This is subject to the net debt/earnings Before Interest, Taxes, Depreciation and Amortisation ratio being within the 2.5 times to 3.5 times range and its exciting that the forecast looks good.
What risks are there if the IPO is not successful?
Not in my view. Malawi’s listing regulations require that every IPO be fully underwritten. This requirement is intended to protect minority retail investors by ensuring that any issuance is fully backed by institutional investors to take up all un-subscribed shares on offer and the offer continues.
The Airtel IPO is underwritten by Old Mutual Investment Group, Nico Asset Managers and National Bank of Malawi Plc who I am sure you agree are well respected and have a proven track record. These companies all conducted a thorough due diligence on the business and its outlook prior to making these commitments.
I trust this provides retail investors with comfort that this is a strong and viable entity and the IPO is expected to be equally successful.
Why should Malawians invest in this business?
Airtel is a fast-growing industry and has invested significantly therefore should grow fast. Airtel is the market leader and it is profitable. These factors intrinsically promise dividend payouts and provide hope for share price gains over time.