Airtel Africa’s listing on the London Stock Exchange proved a disastrous entry into the European capital market as the company’s share price slumped steeply by 16% on its first day of trading.
The decline of the company’s stock value from the listing price of 80 pence to 67 pence automatically ushered it to the rank of the worst stocks to debut in European bourses this year.
Pricing the stock at the bottom end of the price range, that is below its expected valuation, did nothing to rescue it from crashing on its listing day.
Airtel Ignored Pre-listing Warnings: Interestingly, experts had warned prior to the listing that pricing the shares of Airtel Africa at bottom end might not translate to much value in the long run. Analysts at Jefferies, a multinational financial services company, had warned that;
“The IPO will…not lead to any value unlocking at these prices… The deal will lead to small reduction in leverage for the company, as it reduces the debt by USD 750mn.”
The listing followed the completion of the telco’s Initial Public Offering where about $750 million shares were said to have been raised.
Debt portfolio could be the reason for price slump: According to Bloomberg, the lackluster performance of Airtel Africa might have been triggered by the humongous debt and the price war faced by its parent company, Bharti Airtel back at home in India.
It is noteworthy that the IPO was floated to help Airtel Africa reduce its debt burden put at around $5 billion. Currently, Airtel Africa has a presence in 14 African countries with Nigeria being its largest market.
Meanwhile, Ally McKinnon, a fund manager at Scottish Investment Trust Plc, believes that the fall in share price might have been occasioned by the general scepticism investors have when it comes to investing in telcos across emerging markets.
Specifically citing the sanctioning of MTN Nigeria Plc by the Nigerian Government as an instance, McKinnon stated that state intervention posed a significant threat to smooth operations of telcos in developing economies, a development that could easily keep investors away.
“Once you’ve got the network built, you’re vulnerable because you’ve got assets in the country, you’re a big company that makes money, or makes cash flow at least.”
About Initial Public Offering (IPO): An IPO is a process by which a company (often a private corporation) offers its shares for sale to the public for the first time. The process is aimed at raising capital for the company and the activity typically marks a transition of the company from a private to a public one.