Is an IPO really worth it?

In recent weeks the words Initial Public Offering (IPO), List, Stock market, Investors have been bandied around with a lot of excitement attached to it.

Why? The telecoms giant MTN Ghana, part of the MTN Group launched its Initial Public Offering (IPO) yesterday in Accra. This process will finally see MTN List on the Ghana Stock Exchange around September this year. 

But in the midst of this, one may ask what are the benefits and downsides of a company considering to list or even listing on the stock exchange? We explore these within the context of MTN.

On the upside, MTN Ghana stands to gain a lot from this IPO launch right down to the actual listing (when they are on the Ghana Stock Exchange). 

Let’s start off with the very obvious, which is the ability to raise large amounts of money. The targeted amount is GHS 3.47 billion. The amount is ostensibly very humongous and the stock market usually provides an avenue for such large amounts to be raised. 

We can also examine the positive effects of this on their corporate image. The airwaves have been awash with promos and ads on the IPO of the company.

The launch was held at the Marriot Hotel and was highly patronized by government officials such as the Finance Minister, Ken Ofori Atta, Captains of industry and a wide number of organizations and individuals.

The continuous buzz of the IPO will only go to give credence to the brand and image the company has garnered over the period. Their eventual presence on the local bourse will only go to add more visibility to an already visible brand.

The multiplicity of new shareholders can also go to increase the governance of the firm. With the issue of shares, purchasers of these shares will now have a stake in the governance structure of the firm. This is however not absolute. 

There are some fine details on how these rights are allocated in companies but all things being equal, your share is your vote and a large number of new shareholders can adequately push for reforms and strategic changes.

Finally, on the positive aspects, IPOs usually are a great way to attract and retain key employees either by offering them a chance to own a stake in the company or with the goodwill the companies usually garner during such IPOs may cause potential employers to flock to them for a piece of the pie. CEO of MTN Ghana, Ebenezer Asante in his speech highlighted the company’s effort in offering employment to a large number of individuals

The positive aspects sound all well and good, but what are the possible downsides?

The shareholding structure of MTN pre-IPO is as follows;

Investcom Consortium with 10,496,380,000 shares representing 97.55% MTN Dubai Limited with 10,760,000 shares representing 0.10% and Zent International Limited with 252,860,000 shares representing 2.35%. This totals 10,760,000,000 shares which is equal to 100%.

When the IPO goes through, the new shareholding structure would be this;

Investcom Consortium with 8,348,684,133 shares representing 63.01%, MTN Dubai Limited shares 10,760,000 representing 0.08%, Zent International Limited with 252,860,000 representing1.91% and the Aggregate holders of Offer Shares (potential shareholders) with 4,637,394,533 representing 35.00%.

This will bring the total Issued Shares (Post-Offer) 13,249,698,667 which is equal to 100.00%.

Clearly, you can deduce that the other shareholders will have their holdings diluted. This can even be further extended to the control the initial shareholders will have after the offer. All things being equal, it is expected to see the hold one shareholder may have in perhaps appointing board members may reduce.

Again, listing on the stock exchange comes with some filing expenses. There is a myriad of costs and expenses involved. The total transaction if the IPO is successful will cost GHC 87,177,879. 

After an IPO is successful, the regulator of the market such as the Securities and Exchange Commission of Ghana (SEC) usually requires full disclosure on almost every aspect of the company’s operations. 

These are meant to protect the investing public and ensure fair play and competition in the securities market. However, such disclosures over time as argued by some pundits will mean a lot more information than a company may desire is put out in the public domain.

The positives and negatives of an IPO may suit who exactly is arguing for or against them. The examples I have given are by no means exhaustive but are only meant to throw light on some of the benefits and negatives of an IPO within the context of MTN.

 

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