Focus: Stock Exchange

Historic Handover

Jan. 3, 2018

In November 2016, telecommunications giant Vodacom listed 25% of its shares on the Dar es Salaam Stock Exchange, the biggest IPO in Tanzania's history.

While the Dar es Salaam Stock Exchange (DSE) has seen a fair few whopping IPOs in its time—notably from leading banks CRDB and NMB, two of the country's largest cement producers Tanga and Portland, and the DSE itself, which mutualized in 2016—Vodacom's listing of 25% of its shares, a hefty TZS476 billion (USD210 million), will go down in Tanzanian history for several reasons.

Firstly, Vodacom's IPO represents the biggest ever shares injection into the DSE, whose market capitalization currently stands at just TZS19 trillion (USD8.4 billion). Secondly, this is the first offering to be made following the governmental legislation of 2016 that requires all telecommunication service providers to list a quarter of their shares on the stock exchange. And, as the latest amendment to this law has enabled foreign companies to buy these shares, many are eagerly watching to see how this will radically alter the profile of Tanzania's capital markets, and investment prospects as a whole.
The government first introduced its ambition to force telecoms to list in its 2010 Electronic and Postal Communication Act (EPOCA), which stipulated that all IT companies registered in the country had three years to complete their offer registration processes. However, not a single telecommunications company complied with this law, mostly due to concerns that the performance of the DSE at the time would negatively affect their share prices.
The government, however, was not discouraged. Reaffirming these intentions, the National Assembly issued a new Finance Bill midway through 2016, enforcing the original plan for telecoms to list 25% of their shares, and this time giving the companies implicated only six months to complete their registration. Any company failing to comply with the latest law would face penalties imposed by the Tanzania Communications Regulatory Authority (TCRA), such as fines and cancelled licenses.
As a result, three of the largest companies in Tanzania—not just in the IT sector—have been readying themselves for IPOs. Vodacom is the pioneer, receiving approval for its listing process last November and proceeding with the first sales in March 2017. Due to follow, but held up in the decision-making process, are multinationals Airtel and TIGO, with a combined expected listing value of USD1 billion.
The fact that the telecoms industry in Tanzania was worth USD996 million at YE2016 might shed light on the government's motivation for forcing these listings. Minister of Finance, Hon. Philip Mpango, states that the move is vital to improve Tanzania's financial inclusion, enabling Tanzanians to own shares, as well as raising vital capital for the country's growth plans.
In addition, as Moremi Marwa, CEO of the DSE, told TBY in an exclusive interview, a move like this could rapidly boost the growth of the capital market industry. “Currently," he said, “the market is not deep enough or liquid enough to be attractive for a private entrepreneur or industrialist to consider raising capital or as an exit mechanism."
However, after the disclosure that President Magufuli is looking to establish a similar law obliging mining companies to sell 30% of their shares via IPO within the next two years, and considering the recent spate of mining scandals, it is also likely that the Tanzanian administration is looking toward public listing as a further way of ensuring transparency among its biggest private companies.
Many have been relieved to see the government amending the Finance Bill to allow East African companies and joint ventures between Tanzanian and foreign firms to buy the shares. However, it will be interesting to see what happens next, as more and more of the country's most promising and profitable industries are offered up for investment, both inside and outside Tanzania.