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Investors from Kenya and other East African countries have been locked out of the ongoing initial public offering of Ethiopia’s State-owned Ethio Telecom. This follows a decision to limit the sale to Ethiopian citizens.
Kenyans have been able to participate in other regional IPOs, including those of telcos in Uganda and Tanzania, giving them an opportunity to diversify their returns away from the Nairobi Securities Exchange (NSE).
“The offer is being made solely to Ethiopian citizens who are physically present in Ethiopia,” reads the prospectus of the IPO, which opened on October 17 and runs until January 3, 2025.
The stance contrasts with the other recent telco IPOs in the region. In Uganda, Kenyans participated in the MTN Uganda IPO in 2021, as well as a secondary sale of the company’s shares that was carried out between May and June this year.
Similarly, the Airtel Uganda IPO in November 2023 was opened to regional participants.
In Tanzania, foreign investors were allowed to effectively underwrite the Vodacom Tanzania IPO in 2017, after initially being locked out. The rule change allowed the IPO to hit its target of $213 million, with foreigners accounting for 40 percent of the subscription.
In contrast, Ethiopia’s financial sector has been largely closed to foreign investors for years, but has recently taken steps towards liberalisation by introducing legislative proposals to open up its banking sector to foreign investment beyond the establishment of representative offices.
The country also operated without a formal stock exchange until October 2023, when it set up the Ethiopian Securities Exchange (ESX) through a partnership between its finance ministry, the government’s strategic investment arm Ethiopian Investment Holdings (EIH) and Nairobi-based FSD Africa.
Debut listing
Until last year, Ethiopia was the biggest African economy without a stock exchange, but it now sees the new bourse as a key plank in its efforts to open up its economy to foreign investment and as a platform for privatisation of its State-owned enterprises.
The Ethio telecom IPO is the new market’s debut listing. The offer will see the company, whose equity is held by EIH, sell a 10 percent stake to the public seeking to raise $255 million (Sh33 billion).
The exchange tapped the capital from 48 domestic and foreign commercial investors in exchange for a 75 percent stake, having held roadshows in Addis Ababa, Nairobi and London to market the cash raise.
These investors included FSD Africa, the Trade and Development Bank (TDB) and the Nigeria Exchange Group (NGX). Others included 16 domestic private commercial banks, 12 private insurance companies and 17 other private domestic investors.
The establishment of an exchange requires significant preparatory work on the underlying market support structures, including trading infrastructure, trading rules, intermediaries such as stockbrokers and investment banks, custodians, a central securities depository, and fund managers.
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