The successful listing of IHS on the New York Stock Exchange would likely encourage foreign investors to once again look in the direction of Nigeria’s telecommunication industry, experts have said.
Foreign direct investments (FDI) into the country’s telecommunication sector have declined by 20 percent in the past three to four years.
IHS, the largest tower operator in Nigeria, on Thursday, announced the pricing of its initial public offer (IPO) of 18 million ordinary shares at an offering price of $21.000 per share.
“It is good for the reputation of the company and the reputation of our market. If they are able to list on the New York Stock Exchange it means that there is confidence in the company and also in the market in Nigeria,” Adebayo Gbenga, president, Association of Licensed Telcoms Operators of Nigeria (ALTON), told BusinessDay.
“The IPO is a good test of the sort of valuation placed on digital infrastructure in countries such as Nigeria where infrastructure gaps is a corresponding factor in what is now recognised as the ‘digital divide’ and represents an opportunity to the tune of $300 billion over the next 10 years.
The outcome of the IPO will set a precedence,” said Olusola Teniola, former president of the Association of Telecommunications Operators of Nigeria (ATCON).
The telecom sector has been a top contributor to the gross domestic product (GDP) of Nigeria despite economic headwinds and the impact of the COVID-19.
NCC data shows telecoms’ contribution to GDP in 2012 was 7.7 percent, but the figure doubled to 14.3 percent as of the second quarter of 2020. This represented a N2.3 trillion growth, whereas the total contribution of Information and Communications Technology (ICT) to GDP was 17.5 percent. Except for 2013, when there was a slight drop, ICT contribution to GDP had maintained a steady growth rate between 2012 and 2020.
Nonetheless, GDP growth has not translated to the consistent growth in local and foreign investments.
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Etisalat coming into the market in 2014 was the last foreign investor to make a direct investment in the industry, since then foreign direct investment has not picked up.
A yearly report by the Nigerian Communications Commission (NCC) showed that FDI into the Nigerian telecommunications Industry in 2020 was approximately $417 million compared with $942.8 million recorded in 2019. This translates to a decline of 55.7 percent. Operators attributed the decline largely to the outbreak of the COVID-19 pandemic that distorted global businesses and impacted businesses negatively.
The domestic investment (CAPEX) in that year was at N408 billion based on submissions from responsive licences, compared with N501 billion invested locally in 2019. The CAPEX investment declined by 18.62 percent due to “probable challenges of the global pandemic in 2020,” the NCC report noted.
MTN which holds a 20 percent stake in IHS is one of the biggest winners of the listing. At $21 per share, the telco’s stake in IHS now stands at an implied value of $1.79 billion.
“The closing of the offering is expected to occur on Monday, October 18, 2021, subject to satisfaction of customary closing conditions,” IHS noted in a statement on Thursday. “After the IPO, MTN will hold 85,176,719 ordinary shares from IHS Towers.”
MTN Nigeria’s share price closed at N174.90 at the close of trade on the Nigerian Stock Exchange on Wednesday. The telco began the year with a share price of N169.90 and has since gained 2.94 percent on that price valuation, ranking it 64th on the NGX in terms of year-to-date performance.
Beyond having a stake appreciation, MTN’s 5G network ambition in Nigeria would also get a boost. IHS accounted for 16,522 towers of the 37,625 towers in Nigeria representing almost 50 percent of the total in the market as of June 2021. Nigeria had a total of 33,832 Towers recorded from mobile and fixed operators as well as collocation and infrastructure companies as of December 2020. In essence, IHS accounts for almost 50 percent of the total number of towers in the country.
With MTN being its largest customer, it is expected that the telco would benefit from the scaling of IHS telecom infrastructure from proceeds from the IPO, especially towards the deployment of the 5G network. The tower company confirms that it intends to continue investing capital at attractive rates of return.
IHS is seeking to raise over $500 million from the IPO which would see its valuation rise to $8 billion making it the largest Africa-focused company on the exchange. The underwriters of the offering will also have a 30-day option to purchase up to an additional 2,700,000 ordinary shares from IHS Towers at the initial public offering price, less the underwriting discount. The ordinary shares are expected to begin trading on the New York Stock Exchange on October 14, 2021, under the ticker symbol “IHS.