Concern Mounts Over Possible Share Manipulation in MTN’s NSE Listing

  • Some 700 Shareholders profiting from massive demand and piecemeal supply intended to jack up value
  • Share price jumps 21% in 2 days of trading

Kunle Aderinokun, Obinna Chima, Goddy Egene and Bamidele Famofoo

Investors on the Nigerian Stock Exchange (NSE) and stakeholders waiting to purchase the shares of MTN Nigeria Communications Plc through an initial public offering (IPO) may do so at a very high premium whenever the telco decides to float the IPO.

This is because of the free float accommodation MTN Nigeria was granted by the capital market regulators to pave the way for its listing last Thursday, even as MTN exercised its option on preference shares worth N145 billion a day after the listing and went ahead to borrow a further N200 billion from Nigerian banks, to pay off the preference shareholders at the listing price of N90 per share, a source revealed.

These developments are already creating illiquidity and driving MTN Nigeria’s share price, which gained 21 per cent in just two trading sessions, from the N90 per share it was listed last Thursday, to the N108.90 per share it closed on Friday.

In fact, analysts told THISDAY that the intention of the pent-up demand on MTN Nigeria’s shares was to drive the price of the stock very high before any share offering through an IPO.

In addition, one analyst said the IPO may take a longer time to come, as the telco is said to be hiding under the alleged $2 billion tax liabilities slapped on them by the Office of The Attorney General ( AGF) instead of the Federal Inland Revenue Service( FIRS) to delay the public share offering that was expected to be beneficial to a whole lot of retail investors and stakeholders, while few existing shareholders are currently making hay in an illiquid market for MTN shares.

According to a source who is very familiar with MTN Nigeria’s affairs, “Most of the investors, lost value because of the Central Bank of Nigeria (CBN) fine last year. So, this Listing by Introduction in the NSE was being designed to create a “value recovery” for the previous investors and pave the way for them to sell off their shares, after driving the price to the desired level which a senior stock broker said was sheer ” share manipulation”. He further opined that “this can only happen in Nigeria. If you try such in The New York Stock Exchange or even the Johannesburg Stock Exchange, the regulators and law enforcement will pounce on you.”

“Essentially, there are about 700 shareholders who came in through the private placement that are currently allowed to cross these shares among themselves and with other buyers. But the remaining A-list shareholders and directors have been advised by lawyers not to take advantage of the current price appreciation until the IPO to avoid legal challenges and law enforcement inquiry.

“So they want this share to rise to more than N150 to N200 per share, which allows them to recover and thereafter, the company would now float an IPO…. What they (MTN Nigeria) are telling the markets and regulators is that they are delaying the IPO because of the AGF’s directive on tax arrears.”

Another analyst insisted, “What they are trying to do is to manipulate their share price to a level, then do their IPO.”

The listing requirements of the NSE allow companies that want to list on the premium board to make 20 per cent of the shares available for trading. But the NSE allowed the MTN Listing by Introduction because they expected MTN to meet its Listing Rule 2.2.4b, where the NSE stated that the,”the value of its free float shares is equal to or above N40 billion on the date the Exchange receives its application to list.”

This was not met as only 5.542 million shares, at N90 per share was traded, so instead of N40 billion, the telco complied with N498 million in free float.

THISDAY checks also revealed that that Rule even has a proviso: “that The Exchange will from time to time determine the market capitalisation and free float requirement” as was done when Dangote listed it’s shares by introduction and the NSE insisted at least five per cent of the shares be made available to all investors which the Dangote Group complied with. This is apparently not the case when it comes to MTN, which may have gotten preferential treatment – allowing the telco to create illiquidity of the shares in the market, and deliberately so to drive up the share price.

MTN Nigeria, which was previously indebted to Nigerian banks to the tune of N252 billion, last week signed an agreement for a fresh N200 billion syndicated loan with seven local banks. The company was to seal the seven-year medium term facility so as to pay off its preference shareholders.

“The intention of raising the N200 billion was to pay off all their preference shareholders because they do not want the shares to be available in the market to create any liquidity at this time,” analysts added.

THISDAY checks showed that only 53.900 million shares were traded in the first two days. While many investors on the NSE were frantically demanding for the shares, only 53.900 million shares were transacted in mostly cross deals. Specifically, 5.542 million shares were traded at N99 per share on Thursday, and 48.358 million shares at N108.90 per share on Friday due to a 10 per cent daily appreciation.

While MTN made an initial investment of $300 million, when it came into Nigeria 18 years ago, the telco has realised over $6 billion in returns. MTN Nigeria’s revenue hit N1.04 trillion in its 2018 full year results, an increase of 17.2 per cent compared with the N884.5 billion it recorded in 2017. The rise in revenue was driven by voice revenue.

The Attorney General of the Federation (AGF) and Minister of Justice, Mr. Abubakar Malami, had last September directed MTN Nigeria to pay $2 billion to the federal government, being taxes it allegedly failed to remit to the government in the past 10 years. The AGF notified MTN in a letter that his office made a high-level calculation and came to the conclusion that MTN Nigeria should have paid approximately $2 billion in taxes relating to the importation of foreign equipment and payments to foreign suppliers over the last 10 years and requested the company to do a self-assessment of the taxes.

The telco has since dragged the AGF to court.

The AGF had stated that the government intended to recover up to $2 billion in tax relating to, inter alia, import duties, VAT and withholding taxes on foreign imports/payments.

Moreover, MTN Nigeria is subject to numerous risks relating to legal and regulatory proceedings to which it is currently a party or which could develop in the future. The company’s involvement in litigation and regulatory proceedings may adversely affect its reputation.

For instance, as at April 8, 2019, the aggregate sum claimed against the company in on-going cases was approximately N231 billion; US$19,721,386.21; and GBP40, 000.

Additionally, litigation and regulatory proceedings are unpredictable and legal or regulatory proceedings in which MTN Nigeria is or may become involved (or settlements thereof) may have a material adverse effect on MTN Nigeria’s business, financial condition, results of operations and prospects.

MTN Nigeria had in the past faced litigation and recently been subject of a number of petitions, complaints and threats of class-action and other lawsuits by competitors, suppliers and subscribers, in relation to unsolicited marketing message content delivered to such subscribers.

The telco had also been subject of numerous complaints by customers in relation to a SIM swap scam carried out by phone scammers, who seek to obtain people’s private information to defraud them of banking funds. If the company is subject to any such litigation or regulatory proceedings in the future, it could have a material adverse effect on its business, financial condition, results of operations and prospects.

MTN Nigeria was also involved in a suit against the CBN concerning a demand by the bank for the sum of US$8.1 billion from the company. The said sum was alleged to have been illegally transferred from Nigeria using Certificates of Capital Importation wrongly issued by CBN’s Authorised Dealers. This matter has, however, since been resolved with the CBN.

The residual amount of the NCC fine owed to Federal Government is about N165bn.

MTN Shareholding Structure

The shareholding structure of MTN Nigeria is such that MTN International Limited with 15,485,544,050 is the controlling entity with 76.08 per cent of the shares.

On the other hand, the non-controlling entities in the telco include Stanbic IBTC Asset Management Limited with 1,962,349, 050 (9.64%); Victor Odili, 806,886,900 (3.96%); Mobile Telephone Network N.I.C.B.V with 559,720,150 (2.75%); Government Employees Pension Fund (represented by Public Investment Corporation SOC Limited), 355,281,650 units (1.75%) and Pascal Dozie with 340,409,900 units (1.67%).

Other non-controlling entities are Sani Mohammed Bello, 265,092,150 (1.30%); Babatunde Folawiyo, 218,815,100 (1.08%); Gbenga Oyebode with 181,776,250 units (0.89%); Mallam Ahmed Dasuki with 177,717,850 units (0.87%) and Karl Olutokun Toriola with 920,000 units (0.005%).