Uganda: How 20% Share Offer Rule Starves Uganda’s Bourse of Public Listings

A rule that requires local companies to offer at least 20 per cent of their shares to the public before they are listed on the Uganda Securities Exchange is keeping away large companies from listing.

According to industry sources, large companies operating in Uganda have majority ownership of between 85 per cent and 90 per cent held by big multinationals.

Under the old practice, minority investors in a company willing to list on the stockmarket gave up 10 per cent of their shares while majority owners offered an equal amount in order to achieve the minimum 20 per cent public offer threshold.

The 20 per cent share requirement is deemed sufficient by capital markets regulators for substantial allocation of shares to various investor categories and vibrant secondary market trading, experts say.

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However, some cases of minority investors with less than 10 per cent shares and majority shareholders reluctant to sell more than 10 per cent of their shares have complicated matters for potential initial public offerings (IPOs).

Stiff commercial disclosure requirements also pose a big headache to large but secretive foreign investors nervous about the calibre of local regulators.

"There is a case of a big local bank that expressed interest in listing on the USE sometime back but abandoned the idea due to lack of shareholder compromise over the 20 per cent share offer rule. While the minority shareholders own less than 10 per cent of the business and were willing to offload some of their shares, the majority institutional shareholders were uncomfortable with the idea of selling more than 10 per cent of their shares so as to comply with the listing ratio. As a result, their IPO dream was shattered in the boardroom. This problem tends to affect similar firms that may consider listing on the stock market," said an equity analyst who requested anonymity, citing confidentiality obligations.

An examples of a big company with a few large shareholders and small minority investors is MTN Uganda, the country’s largest telecommunications service provider. MTN Group Ltd of South Africa owns more than 90 per cent of the company’s shares while a Ugandan businessman holds less than five per cent shares. MTN Uganda is still considering a listing on the local bourse in line with government’s conditions for renewal of its licence, but there is no confirmation yet of the company’s transaction roadmap.

Century Bottling Company Ltd, a local producer of Coca-Cola products, is a […]

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