In the ongoing battle to explain the MTN initial Public Offer (IPO) I got a call from a long lost source.
A banker of long standing, he is one of those who gave a
young man learning to report business the time of day. Ordinarily he does not
suffer fools gladly, but looking back he was painfully patient with my
beginner’s ignorance.
He still has a lot to teach.
Our discussion was long and far reaching, but maybe of
interest to some would be his take on the MTN IPO.
To simplify it for me he created an agricultural analogy.
Imagine that there was big open space in your locality, he
begun. No one uses it, it has been a green grassy plain for a long time, for as
long as you remember.
Then one day there was a lot of activity – fence building,
grading of the land and roads. The story was that some people for far away, with
money had gone to the district and had leased the land from the local government.
They said they were going to set up a vineyard, grow grapes for wine making.
Of course the villagers laughed. Who had ever grown grapes
here? What a waste of money.
The promoters however went along with their “crazy plans”,
the vineyards were planted and it seemed like they flourished – the local man
wouldn’t know how to tell anyway. Within a few years the owners of the vineyard
started trucking cartons of wine, past the villagers and out to places unknown.
But in order to maintain local relations, they started marketing some limited bottles in the neighborhood. The locals developed a taste for the wine and became a major market....
In due course the lease for the land came up for renewal.
The local authorities in their wisdom now insisted, as a condition of renewal
that the vineyard owners should sell a share of the business to local
investors. Their thinking was that apart from tax, some of the profits should
stay in the local community.
There was some haggling, because the vineyard owners were
making a lot of money and felt no need to have local partners. And they did not
need to raise money for their business locally, which would have been another
reason to try and bring in local investors.
They even argued that the sale be to the biggest local
business man, Nasser Fadhul, locally known as NSSF (ok, that was my own
addition). This would have been convenient for them to deal with one buyer
rather than the whole district, but they argued too, that if NSSF bought it all,
it would guarantee that the money would be retained locally. If they opened it
up to all buyers people from other districts would come in and buy as well and
the cause to keep money in the community would not stand. But the local
authorities put their foot down and insisted that the villagers should get a
share in their individual capacities.
Once they agreed they went out to the market. Given the
prosperity of the vineyard/wine makers – the villagers used to see only
four-wheel drive cars driving in and out of the compound, it seemed obvious
that everyone would want a piece of the business.
But surprisingly stories started flying around that, the
owners wanted to sell and leave the villagers with a shell of the company;
money from the sale of shares was going to owners and not going to the
business; the company status was not changed to allow it sell shares to the
company and therefore the sale should be stopped; the vineyard had reached
maturity and the profits would not be as heavy as before.
All these rumours, despite the owners describing their
business to the public in a well laid out prospectus.
"The vineyard owners explained they were not going anywhere, after all they were only selling a fifth of the company and intended to be around long into the future to enjoy the returns of their sweat, which also put paid to the allegation that the business had hit its peak and was in decline. The payment to them for the shares they were selling would not affect the business and in fact in the future, given their projections for the company, it was a small amount of money. In effect they were forgoing future earnings and capital growth in selling their shares....
They did not know where to start in explaining that they
were not selling shares legally. The deal had been struck with their own
local leaders, looked over, over and over again to ensure it met all legal
requirements locally and abroad. They were open to further scrutiny on this
matter if people wanted.
My old friend has his own theories about why the rumours
were running rife and he thought it was little to do with the financial illiteracy
of the villagers. Maybe it was something to do with the fewer the buyers the
few will get bigger individual shares?
After all he pointed out, if they did not get any buyers,
the vineyard owners could report to local authorities that people did not buy and
keep their share of the company to themselves. More than gladly.
My banker friend stopped there, ending his narration on a
biblical note, “Many are called but few are chosen.”
