Letshego Namibia IPO under-subscribed

Ogone Tlhage - Following Letshego Holdings Namibia's (LHN) recent under-subscribed Initial Public Offering (IPO), analysts this week weighed in to share their initial thoughts on the subdued interest in the recent listing on the Namibia Stock Exchange (NSX).

Namibia Equity Brokers analyst Elwis Katuwo felt LHN's listing was a means to comply with regulatory requirements that require banking institutions to have a significant form of local ownership. This, he said, might have been the reason behind its listing.

According to Katuwo, a listing is one avenue towards achieving regulatory compliance.

“During Letshego's IPO we had a discussion with the management team. We could not get a clear understanding as to the growth prospects of the stock and why investors should acquire the stock or why Letshego came to the market other than to comply with regulatory requirements,” Katuwo said.

Surprise
Simonis Storm analyst Megameno Shetunyenga said the Letshego under-subscription came as a surprise.

“We were slightly surprised, especially that they were not able to raise at least 50% of the initial IPO value. However, we believe that is an indication of the market uncertainty around the company as a whole and its strategy going forward,” he said.

According to him, there were some concerns about the Letshego IPO.

These included barriers to entry regarding Namswitch and Namclear, over-reliance on loans to government employees, proposed changes to its business model and the experience and knowledge required to implement the new model, possible further dilution due to the 45% local ownership requirement, and uncertainty about the forecast numbers provided in the IPO prospectus.

Reservations
Despite the under-subscription, IJG head of research Eric van Zyl believed that Letshego held good value for investors in spite of some reservations outlined in an IJG initiation report.

“The research team was not involved in the book-build and thus [we] do not know what the specific concerns were that were raised by possible investors,” Van Zyl said following the listing.

IJG is LHN's listings sponsor on the NSX.

In its initiation report, IJG listed its reservations regarding Letshego, stating that the lender faced some noteworthy business risks.

“Firstly, the cap on interest rates charged could be lowered which would have an immediate effect on the net interest margin of the lender. The ministry of finance has already issued guidelines to introduce regulations for reduced interest rate caps that will apply to the businesses of 2022 Letshego Bank Namibia and Letshego Micro Financial Services Namibia as payroll deduction code holders,” IJG said.

Currently, Letshego is reliant on government deduction codes for their collections. The government may decide not to renew the deduction system after 2022.

“Both Letshego Bank Namibia (LBN) and Letshego Micro Financial Services Namibia (LMFSN) are currently reliant on government deduction codes for their collections. These codes have been issued for a five-year term after which they need to be renewed. If the facility is not renewed in 2022 the business might face increased credit risk and much higher non-performing loans,” IJG said.

Letshego, IJG felt, depended almost entirely on government employees as far as loans extended were concerned.

“Due to the historical business model of offering payroll loans to government employees, LMFSN has high credit concentration risk, with 99.6% of the loans concentrated in the government sector,” IJG said.

LHN did not comment by the time of going to press.