Crystal Telecom, a subsidiary of Crystal Ventures Limited, launched its Initial Public Offering (IPO) to investors last week, giving a chance to Rwandans and foreigners to own a piece of Rwanda’s largest telecom firm, MTN Rwanda. Business Times’ Ben Gasore caught up with Jack Kayonga, the Crystal Ventures chairman, who shared more insights on the IPO and why Rwandans shouldn’t miss the opportunity.

Why is Crystal Ventures selling its shares in Crystal Telecom?

Crystal Ventures is selling its shares in Crystal Telecom, which holds 20 per cent shares in MTN Rwanda, mainly because it is part of our policy to exit mature investments; this one was beyond maturity. We kept holding on it because the temptation was high given that it was a blue-chip company that was giving us good returns.

However, we eventually decided to divest and invest elsewhere to create additional value. So, we are exiting because we think there wasn’t more value-addition on the side of Crystal Ventures. Besides, the sale will give us a good return on investment which we can invest in young industries. It is also the best opportunity for us to empower Rwandans and support the government’s initiatives toward developing the stock exchange. The IPO will increase the liquidity that is required to drive the economy.

Which sectors do you plan to invest in after the IPO?

First of all, we want to strengthen our portfolio and look at other sectors, like energy, which are important for the growth of the country.

You talked of receiving good returns over the past few years from MTN Rwanda. How much was it and should Rwandans expect the same or even better dividends?

I am confident that there will be a good dividend flow for investors. If you look at the MTN Rwanda financials, it has got about $35 million (Rwf25.6 billion) in cash in the business so it is cash strong. It has got low capital intensity and, therefore, dividends should be paid probably even twice a year, if need be.

What is Crystal Telecom planning to create other revenue streams for shareholders?

We are listing 100 per cent of Crystal Telecom… So, effective June 5, Crystal Ventures will have no stake in Crystal Telecom. When we created Crystal Telecom, the sole purpose was to hold the shares of MTN Rwanda so after June 5, the firm will be in the hands of the new shareholders. But for the purpose of the IPO, it was strictly to hold MTN shares.

Being the first private sector company to do an IPO, what advice can you give other private firms?

First of all, our listing is a ‘special kind’ because we are listing a special-purpose vehicle; one that does not have day-to-day activities and has a sole income of dividends, which makes it different from other companies. Remember, the listing of Crystal Telecom was done on the strength of MTN Rwanda which is an ethical company that follows strict corporate governance.

MTN follows similar rules that listed companies follow.

So, companies must understand that listing on the stcock exchange is not something that you wake up and do. The Rwanda Stock Exchange and the Capital Markets Authority will provide the requirements. For example, the firm needs to be profitable for three years before listing and have audited financial statements. It should also have typical corporate governance with a functioning board comprised of independent members, and you need to be seen to be ethical overtime with less litigation against you.

So Crystal Ventures did not find any challenges because it is ethical and is known in the market. Crystal Telecom too, has a clean balance sheet.

It was created less than a year ago for one activity. Currently, its operational expenses stand at $80,000 (about Rwf58.4 million) a year, consisting of directors payments, audit fees and administrative reporting costs.

What are some of the challenges you faced before the IPO?

There were no challenges that were not anticipated. However, there were challenges, like timing and communication among stakeholders, but largely, I would say it was not a bumpy ride. It has gone on well. We had good advisers, put up an excellent team who ensured the process was smooth.

How did you arrive at Rwf105 opening share price and the timing of coming to the market now?

Rwf105 is not a magic number…It is a derived figure. If you check MTN Rwanda’s financial statements and look at the firm’s performance, its cash flow; the earnings per share, as well as the dividends and their yield, one would easily realise that Rwf105 is absolutely a good buy. It is based on several factors. A stock price is a price like any other. So until you know the metrics that derive the price, you can’t look at the price in isolation.

Someone called me, wondering why our IPO price is below those of Bank of Kigali and Bralirwa, but it is important to understand that each firm is unique. It is Rwf105 based on the metrics of MTN Rwanda, which is the market leader in all metrics; voice, data and mobile money.

You look at how the business is, do projections on future cash flows; after that you look for a middle way, where investors can benefit from buying stock at this time. So it is based on that price... it is an initial offering. We expect that when it starts trading on the stock market on July 17, its share price will continue gaining value so that shareholders get a return at the end of the year.

Has the IPO attracted any offshore investors?

Yes. As I speak now (Friday), I spent the whole of previous week in Nigeria attending an investment conference…they have picked interest. I will be travelling to Nairobi, Johannesburg, Cape Town, and London to meet potential investors. I have been informed that some offshore investors have already sent in their applications, which is exciting. Rwandans investors can approach any of the 10 local stock exchange brokers handling the share sale for advice.

Are they institutions or individual investors?

The foreign investors are mainly institutions, and these are friends of Rwanda. The one thing I learnt in the investor conference in Nigeria is that there is a lot of appetite for Rwanda. Anything that is coming out of Rwanda is creating demand.

Much as MTN Rwanda as a business has got investor appetite, the fact that it is coming out of a stable, fast-growing economy like Rwanda, excites investors. We are riding on the goodwill of this country… I call on my other colleagues, the champions and captains of business in the different sectors of the economy to leverage the good will this country has.

To a layman, 20 per cent of MTN Rwanda sounds like an insignificant amount of profits to share at the end of the year. What is your take on this?

Anyone who says that is probably not the target market because when you go to the stock exchange, you are simply telling everybody you don’t need to own a company 100 per cent. If I had one per cent of Coca Cola or Apple, I think I would be better than the person who owns 80 per cent in MTN Rwanda. Therefore, the issue is not about the percentage.

It is about the growth of your share price, what is your gain on investing in a particular stock.

The 20 per cent of MTN Rwanda is less than the 80 per cent held by MTN Group, but you never know... If tomorrow the group decided to bring more shares to the stock market, you would have an advantage because you would have been in the business, and would be able to buy more stocks.

So, it is not small. We are valuing the 20 per cent in MTN Rwanda in the region of about $40 million (about Rwf30 billion).

This is quite sizeable in our economy, with a Gross Domestic Product of around $7 billion (about Rwf5 trillion).

Institutional investors have been allocated 75 per cent of the shares, with only 25 per cent going to individual buyers; why is this so?

Well, institutions are bigger than individuals and for sure we were told that we should put retail at probably 10 per cent of the shares and give institutions more shares.

However, we thought it serves our purpose because we are trying to promote the Rwandan retail investors; that is why we increased the percentage for retail investors.

Don’t look at the 25-75 per cent allocation from the aspect that the institutions have more. For the institutions to have 75 per cent, you are probably talking about five institutions. But if you look at the retail Rwandan to be able to raise $10 million (about Rwf7.3 billion), you can be sure there will be several of us. We are saying that the 25 per cent is strictly for the Rwandan and EAC retail investors; you and I.

Remember that if one have a company, say X, that wants to buy shares, it doesn’t constitute retail. What constitutes the retail is Jack, the individual. So it would be good for the individuals to raise $10 million. But again, if they are not able to raise $10 million, we will re-allocate the shares to institutional investors and vice-versa.

What institutions have so far shown interest?

The institutional investors are all in one pool; Rwanda, the East African Community and beyond.

Those that have shown interest are mainly the institutions that invested in Bralirwa and Bank of Kigali because they are familiar with the market. The good performance of the two firms on the bourse could be driving their appetite. But word of mouth has also moved around and those who missed the opportunity to invest in the Bralirwa and Bank of Kigali IPOs are looking forward to invest with us.

Bank of Kigali and Bralirwa have been the most active counters at the bourse. With a third option coming, how do you think the market will react?

I think the local stock market will be more vibrant; there will also be more liquidity. Besides, it will create diversity, giving investors more options to choose from. Having three local firms listed on the exchange, irrespective of our size, I still think we are way below where we should be. We need to have as many options as possible to grow the exchange and the country generally.

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Crystal Ventures eyeing another IPO in two year?

Crystal ventures could unveil another IPO for one its other firm in the next two years. According to Jack Kayonga, group’s chief, two or three other companies under the Crystal Venture’s stable could be listed on the stock market within two to three years.

Asked whether the group intends to list more of its firms, Kayonga said: "Absolutely, but I cannot mention which ones will be listed or exactly when for now to avoid speculation. However, expect to see us in the market again in the next two to three years, with two or three more from the Crystal Ventures stable.”

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