Shareholders to decide fate of MTN MoMo spinoff

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On July 2, MTN Uganda has announced that it will hold a special shareholder meeting to vote on a proposed plan to separate its mobile money (MTN MoMo) business from its core telecom operations.

The proposed structural separation, according to the statement, refers to the process by which the mobile money and fintech business will stop operating under MTN MoMo, and will instead be operated by MTN New FinCo under a new ownership structure.

Currently, the mobile money and fintech business is operated by MTN MoMo. MTN MoMo is wholly owned by MTN Uganda.

MTN Uganda’s separation of its fintech business, a key growth arm in its sh6 trillion market valuation at the Uganda Securities Exchange (USE), aims to attract third-party capital and partnerships.

For the deal to go ahead during the shareholders' meeting, at least 75% of votes cast must support it.

MTN has more than 20,400 shareholders. The National Social Security Fund (NSSF) is the largest institutional holder with 11.7% stake.

What exactly is happening?

The 2021 legal separation of MTN and MTN MoMo was in accordance with the National Payment Systems Act required MTN to establish MTN MoMo as a separate subsidiary company to perform the function of issuing electronic money.

As a subsidiary of MTN Uganda, MTN MoMo currently handles digital payments, fintech services, and financial products for millions of Ugandans.

Under the proposed separation plan, MTN MoMo will be merged into a new company called MTN New FinCo, which will operate independently. After the proposed merger, MTN New FinCo will be majority owned by a subsidiary of the larger MTN Group (76.015%), while a trust will hold the remaining 23.985% on behalf of MTN’s minority shareholders.

This means that once the spinoff happens, a shareholder’s economic interest in the MTN MoMo will be held through a trust. That trust will receive dividends from MTN New FinCo and pass them on to minority shareholders.

However, there is likely to be a slight tax difference. For instance, dividends from the new fintech company will generally be taxed at 15%, compared to the 10% withholding tax on dividends from MTN Uganda. The firms said it will cushion shareholders from the tax effect.

The trust structure is expected to last between three to five years. According to MTN, the New FinCo may list on the Uganda Securities Exchange in the future to give minority shareholders a chance to own shares directly.

With this plan, MTN wants to grow beyond selling airtime and data. By spinning off its mobile money unit, the company hopes to attract new investors who specialise in financial technology.

According to MTN CEO Sylvia Mulinge, the separation is anticipated to bring in fresh capital, expertise, and innovation that might not have come otherwise.

“We are doing this to unlock a lot more value for our fintech business,” she says. According to MTN, the proposed changes also mean each business can be run separately, with strategies tailored to their unique markets.

What experts say

According to Expedito Gitta, an investment analyst noted that the development is likely to spark short-term market volatility at the USE.

“The notice may trigger short-term price fluctuations as individual shareholders adjust their stakes in MTN Uganda, presenting a compelling buying opportunity,” he said.

“With MTN's new FinCo hinting to list on the exchange, investors can tap into a financial powerhouse that outshines many banks in profitability. Coupled with ongoing dividend payouts, this positions MTN Uganda as one of the best investment prospects in East Africa’s equity markets.”

MTN listed on the USE in December 2021. In the prospectus for the initial public offer, MTN informed its shareholders on the intended structural separation of MTN and MTN MoMo.

MTN share price at the stock market hit record highs of sh290 per share. The share price recovered from lows of sh160 traded in February 2022.