Friday, 19 July 2019

Vodafone defies sceptics

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By Michael Bevan, director and head of equity capital markets, MENA, HSBC Bank Middle East; Neil Nicholson, partner and head of corporate finance, Denton Wilde Sapte, Dubai; and Romi Nayef, associate, Denton Wilde Sapte, Doha.

At the end of April 2009, with the global equity markets still in the depths of despair and the IPO window largely closed for all but the bravest of issuers, Vodafone Qatar QSC defied the sceptics and closed its QR3.4bn (US$940m) IPO. Despite being targeted at just Qatari individuals and Qatari-owned institutions, the offer was fully covered, with additional unsatisfied institutions unable to receive shares due to an offer structure designed to skew allocations towards Qatari retail investors.

At the close of the subscription period, the IPO was the largest globally in the year to-date, the second largest IPO ever in Qatar and the first multi-national company to be offered on the Doha Securities Market (DSM). HSBC Bank Middle East acted as joint financial adviser and joint lead manager with Qatar National Bank, and Denton Wilde Sapte acted as the company's legal counsel.


The IPO was always inevitable and the requirement for Vodafone Qatar (the company) to offer 40% of its share capital to the public and restrict the offering to Qatari residents was written into the terms of the second Public Mobile Telecommunications Network and Services Licence agreement (the license). This licence was awarded on December 10 2007 by a consortium consisting principally of Vodafone Group PLC, the leading global provider of telecommunication services, and Qatar Foundation, "a private institution of public utility" founded by His Highness the Emir Sheikh Hamad Bin Khalifa Al-Thani. The company was incorporated on April 22 2008 and began rolling out its operations in March 2009. The second mobile licence finally allowed a new mobile operator into the State of Qatar following 22 years of monopoly by Qatar Telecom.

Investment case

The investment case offered to investors was driven by a number of factors.

• Vodafone Qatar was entering a buoyant market with average revenue per user or ARPU rates among the highest in the world and a strong outlook driven by a growing and wealthy population in a country with a positive macro outlook and a wealth of natural resources.

• Vodafone Qatar had the support of two key shareholders. Qatar Foundation, a partner with local connections and market knowledge, and Vodafone Group with its international experience and ability to leverage on its global product offering, brand, services and know-how.

• The management team that had been put in place had a wealth of knowledge in the telecoms space and were supported by a very well connected board of directors.

Equity market environment

The key over-riding issue with regards to the IPO was always going to be the state of the equity markets and the challenge in establishing the level of potential demand for what was a large offering in a difficult environment. The MENA equity markets in the first quarter of 2009 remained aligned to the global markets – highly volatile and weak.

The DSM fell by more than 25% in the first three months of 2009 and, for a short period in February, was down more than 65% from its peak just eight months previously. Given the structure of local deals that are principally targeted at retail investors, there is a limited ability to sound out the market on potential demand and a judgement on the depth of potential demand is based on an understanding of local flows, low level discussions with the large Qatari-based families as well as crucial experience on investor behaviour gained from previous deals.

Offer structure

In addition to the unfavourable market conditions, a significant challenge in structuring the offering was to ensure there was a balance between making the IPO a success and that the offering was covered, while at the same time limiting the impact on the DSM, which typically experiences significant liquidity outflows ahead of an IPO when local investors sell existing positions to free up cash to subscribe to the IPO.

The final structure that was approved by the Qatar Financial Markets Authority (the QFMA) involved offering shares to Qatari individuals as well as institutions that were 100% Qatari-owned. There was a cap imposed on subscribers of 1,690,800 shares, representing 0.5% of the total number of shares offered in the IPO, for both individuals and institutions, in order to be seen as treating both individuals and institutions equally as well as to try to protect any significant outflows from the DSM.

Moreover, in order to ensure a widespread distribution of shares among Qataris and to limit institutional involvement, an allocation policy was devised that prioritised individuals ahead of institutions. The structure proved successful, with 72% of the offer shares taken up by retail investors.


The shares were offered at a price of QR10 (with additional QR0.25 offering costs). The pricing was based on the licence cost and enabled new investors to acquire a stake in Vodafone Qatar effectively at the same entry price as the shareholders' consortium that bought the licence.

Given that the IPO was targeted principally at retail investors, the shares were offered through a network of receiving banks, with HSBC Bank Middle East and Qatar National Bank acting as lead receiving banks. Their role was to consolidate all orders from a list of a further 10 banks that assisted in distributing subscription applications, prospectuses and processing orders.

There is typically no investor roadshow on local-style IPOs in the Middle East and marketing the Vodafone Qatar IPO focused on raising awareness among the population through a focused advertising campaign, a number of press conferences as well as events to which members of the public were invited.

Execution challenges

Other challenges with respect to the marketing of the offering related to specific concerns from investors. These included concerns regarding the lack of dividend payments in the first years of operation of the company as well as whether the company was Sharia-compliant, a debate that involved a number of different scholars and proved ultimately inconclusive but certainly impacted potential demand from investors.

The Qatari market is used to new issuers, as existing operating companies, paying dividends more or less immediately after an IPO. As a greenfield operation, and Vodafone's first start-up in over 10 years, Vodafone Qatar was a different proposition, needing significant capital expenditure in the first years of operation to build out its network and deliver its business plan, which took priority over paying dividends. This required careful marketing to manage investor expectations, which was successfully achieved.

In addition, during the preparation for the IPO, there was a transition of regulatory authority for the supervision of listings on the DSM from the DSM itself to the newly established QFMA. The IPO transaction team needed to straddle this transition, dealing with a number of new rules, procedures and personnel. In many instances the advisers needed to find innovative solutions to issues posed by the fact that the regulatory regime in Qatar had never had to deal with the IPO of a multinational company before. This required close liaison with the QFMA to deliver the IPO.

Also, one of the regulatory requirements was for the official IPO prospectus to be in the Arabic language. All of HSBC, QNB and Denton Wilde Sapte were able to field bilingual Arabic/English speakers to allow the smooth transition of a draft prospectus produced by necessity in the English language for the benefit of the largely English-only speaking working group into Arabic at every turn, including liaison in Arabic with the QFMA.


Vodafone Qatar is in the process of applying to the QFMA to list the shares on the Doha Stock Market. Once listed, the shares may be traded and transferred without any foreign ownership restrictions, in accordance with the rules and regulations of the DSM.

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