Ethio Telecom to Court Big Investors After Retail Share Sale Falls Short of Ambition

Apr 27 , 2025. By AKSAH ITALO ( FORTUNE STAFF WRITER )

Takeaways

• Ethio telecom is opening its capital market offerings to institutional investors, targeting a 30 billion Br goal.
• The initial public offering saw 47,377 retail investors but raised only 3.2 billion Br, prompting a strategic shift.
• The Ethiopian Securities Exchange, slated to open soon, sees Ethio telecom’s offering as a major test of its systems.
• Ethio telecom’s new strategy focuses on improved governance amidst concerns over its current valuation.

Frehiwot Tamiru, CEO of Ethio telecom, is returning to the capital market after her debut share sale raised only a tenth of the proceeds she wanted. This time, the state-owned telecom company is removing the barriers that have kept large buyers and institutional investors, such as banks and insurance firms, on the sidelines.

Frehiwot disclosed last week that the second round, still part of a plan to raise as much as 30 billion Br, will welcome institutional investors, insurance firms and members of the Ethiopian diaspora willing to put up at least one million Birr.

“Restrictions will now be loosened,” she said at a press conference she held last week at the Skylight Hotel, on Africa Avenue (Bole Road). “Many banks have already shown interest.”

The first round, which closed on February 14, drew 47,377 retail investors who bought 10.7 million shares for 3.2 billion Br, equal to a 10.7pc subscription rate. Under the initial terms, an individual could buy as few as 33 shares, priced at 300 Br, although each represents 100 Br in par value, for 9,900 Br, and no more than 3,333 shares for 999,900 Br. The company’s prospectus, published in October last year, put Ethio telecom’s post-money valuation near at 300 billion Br.

For many analysts, that number looked steep, and the retail-only cap pushed bigger check writers to the curb.

Frehiwot praised early investors and said their money is being held in an escrow account until the shares are registered, then deposited with the Central Securities Depository ahead of the Ethiopian Securities Exchange’s (ESX) opening later this year. Still, she conceded that the heavy restrictions depressed demand.

“Loosening them has been necessary,” she said.

One of the suitors is Sidama Bank, a two-year-old lender that operates in a crowded field of 30 commercial banks and some 12,000 branches nationwide. Its President, Tadesse Hatiya, disclosed he will put the matter before his board “in the coming week.”

Sidama Bank’s books have grown quickly. Assets nearly doubled to 2.62 billion Br in the year ended June 30 from 1.32 billion Br a year earlier; deposits jumped fourfold to 1.22 billion Br; and, the loan portfolio expanded 97pc.

“It's a lucrative business with attractive returns,” Tadesse said, cautioning that any stake should be weighed against liquidity needs.

That balance sheet pressure worries Worku Lemma, a veteran banking consultant. The laws cap bank equity investments at 20pc of paid-up capital, a limit some lenders have already hit while juggling a liquidity squeeze brought on by soaring loan demand and tight reserve ratios.

“Banks must study the risk," Worku told Fortune. "They'll not see immediate cash returns, and their own liquidity is under strain.”

He also questioned the telco's price tag.

“Selling a 100 Br share for 300 Br without a transparent valuation should raise concern,” he said. "Investors will demand voting power and more transparent oversight. The government cannot keep a controlling grip forever.”

Liquidity is equally scarce outside the banking hall. A bruising two-year inflation wave and higher borrowing costs have thinned household savings. Retail buyers found the 9,900 Br entry ticket steep; only 712 subscribers bought the maximum block of 999,900 Br. That left a wide gap between Ethio telecom’s ambitions and reality.

Mered Fikeyohannes, a corporate finance adviser, applauded the decision to let ordinary Ethiopians buy first, calling it “fitting for a company that the public has owned for generations.” But he faulted the share sale’s messaging.

“The equity story was not told well," he told Fortune. "Many people never understood the opportunity. Financial literacy is low, and outreach was limited.”

Mered sees untapped pockets of domestic capital. Public and private pension funds hold roughly 450 billion Br, most of it parked in Treasury bills (T-bills) that pay a negative real yield. Insurance companies face similar limits. Amending those directives, he argued, could redirect long-term money into equities and help Ethio telecom reach its target.

“The investment landscape itself has to improve,” he said.

Ethio telecom’s numbers are solid by emerging-market standards, though critics say they do not justify the valuation. The company reported revenue of 91.4 billion Br in fiscal 2024, up from 71.5 billion Br the previous year, and serves 78.3 million subscribers — about 94.5pc of Ethiopia’s mobile phone market — on a network spanning 8,538 towers and tens of thousands of miles of fibre. Profit figures were not disclosed in the prospectus, and the wide discount at which Safaricom’s local venture trades in Nairobi makes investors wary.

The IPO is also part of a broader, stop-start privatisation. In 2021, the federal government announced it would sell as much as 40pc of Ethio telecom to foreign strategic investors; macroeconomic turbulence put that plan on ice. Two years later, officials tweaked the blueprint to float 45pc and reincorporated the utility as a share company last June.

Brook Taye, who heads Ethiopian Investment Holdings, the state-owned conglomerate steering the process, told Bloomberg a few months ago that the second offering will act as a dress rehearsal for future listings of state enterprises. Brook said the prospectus “meets the highest standard” and that foreign buyers could join once secondary-market trading begins.

While Ethio telecom readies its second call for cash, the first batch of buyers is waiting on paperwork. It began taking orders on October 9 and was due to close the books on January 3. By that date, 43,848 investors had bought 8.78 million shares for 2.64 billion Br. Management won a six-week extension that attracted another 3,529 investors with 1.87 million shares worth 571.7 million Br.

Eventually, the subscription settled at 10.7 million shares for 3.2 billion Br, making scarcely a dent in the 30 billion Br goal.

Analysts say a successful second round would inject credibility into Ethiopia’s still-nascent securities regime. The ESX, slated to start trading later this year, is racing to set clearing and custody rules before any large issuer can float. Ethio telecom is expected to be among its first listings, a high-profile test of trading, settlement and disclosure systems.

“We’ve already started the process of being publicly listed on the secondary market,” Frehiwot said.

Investors who missed the first window may find more room this time, but they will need to read the fine print. Worku believes the real hurdle is governance.

“Investors want to know what they can gain,” he said, arguing that major shareholders will insist on board seats, audited statements and dividend clarity. “It needs to look into its unclear structure.”

Even Sidama Bank, eager as it is, intends to move carefully. According to Tadesse, directors will review stress-test scenarios to ensure the outlay will not restrict lending.

“We see opportunity,” he said. “But we must assess without hurting liquidity.”

Ethio telecom is not waiting. Company executives are holding roadshows targeting diaspora hubs such as Washington, London and Dubai. They also have in mind domestic institutions, among them a pension system that covers 1.8 million civil servants, and privately managed funds that are still in their early stages. The company says it will update its prospectus with nine months of fresh financials before the second offering.

Whether lighter rules and deeper pockets are enough remains to be seen. But, banks remain cautious, and household spending is tight. Still, Frehiwot is betting that brand recognition and a dominant market share can win over sceptics.

“We achieved our aim in the first round,” she said, insisting the exercise built trust in a country where stock ownership is new to most citizens.

Opening the gate wider, she believes, will finish the job.

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PUBLISHED ON Apr 27,2025 [ VOL 26 , NO 1304]

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