NSSF’s Investment in Airtel IPO: A Potential 26% Gain by December

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NSSF Pension Towers
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The National Social Security Fund (NSSF) made a significant announcement on the deadline day, revealing its decision to purchase a 10.55 percent stake in the Airtel initial public offering (IPO).

NSSF’s investment of UGX 199 Billion in the Airtel IPO may yield returns of approximately 26 percent by December, primarily through dividend payouts. This strategic move has garnered attention for saving the fund an estimated UGX 200 Billion due to a discounted acquisition of the stake, which would have been valued at UGX 400 Billion without the discount.

Airtel originally offered 40 billion shares but is ultimately listing only eight billion. NSSF submitted its application to acquire 10.55 percent of the total 40 billion shares, equivalent to 4.22 billion shares.

The IPO closed on the last Friday, following a 15-day extension from the initial October 13 closure date.

NSSF stands to receive dividends of approximately UGX 52 Billion, as per Airtel’s projected UGX 500 Billion dividend payout for the year ending on December 31. This dividend income represents roughly 26 percent of NSSF’s GUX 199 Billion investment.

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Airtel’s prospectus highlights that new shareholders, post-offer, are entitled to receive undistributed interim and/or final dividends for the financial year ending on December 31, 2023, aligning with the company’s dividend policy. According to the Uganda Securities Exchange listing rules, approved dividends must be disbursed within 21 days of the book closure.

Airtel’s prospectus also outlines the dividend payments made in the first and second quarters, amounting to UGX 38.08 Billion and UGX 80.719 Billion, respectively. The telecom anticipates declaring a dividend for the third quarter next month.

NSSF’s annual report for the period ending June 2023 reveals that dividend income has experienced remarkable growth among its revenue streams, surging from UGX 99.8 Billion in June 2022 to UGX 145.12 Billion in June 2023. NSSF’s income sources also include real estate investments and government papers, such as treasury bills and bonds.

During this period, NSSF generated more income from MTN’s dividend payout compared to other stocks, recording UGX 31.5 Billion from its 8.84 percent stake in the telecom.

Airtel’s IPO aims to raise Shs800 billion and has incentivized share offers, reducing the purchase price for institutional investors from Shs100 to Shs47 and for retail investors to Shs71.

Regarding its dividend policy, Airtel has set a target of distributing 95 percent of retained earnings or net profit after tax, whichever is higher. However, the actual dividend payout ratio in any given year depends on various factors, including financial performance, return on equity, macroeconomic conditions, statutory requirements, and agreements with lending institutions. Airtel also acknowledges in its prospectus that it may occasionally modify its dividend policy and cannot guarantee future dividend payments.

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