Sunday, October 25, 2009

GrameenPhone to Raise $71 million in the Largest IPO in Bangladesh’s History

Economist: Call of the market
FT: Telecoms IPO raises $71m in Bangladesh GrameenPhone IPO more than three-times oversubscribed GP's record IPO closes with over 1m applications
Grameen Telecom

Grameen Bank, founded by Muhammad Yunus, a pioneer of microfinance, has been providing the poor an opportunity to borrow money since 1974. GrameenPhone now gives them an opportunity to invest. GrameenPhone, the largest mobile-phone carrier in Bangladesh, is set to raise 4.86 billion takas (US $71 million) this month in the country’s biggest initial public offering (IPO) in history. This amount is ten times the size of the next-biggest IPO. The IPO opened on October 4th and closed on October 18th for non-resident Bangladeshi investors with total subscription over three times the issue target. The IPO for resident Bangladeshis ended on October 8th. According to the Chittagong Stock Exchange, local investors submitted 1.08 million applications (16.57 billion takas) and non-resident investors submitted 671 million takas worth of subscriptions.

In Bangladesh, most homes and almost all rural villages do not have telephone connectivity. In an effort to provide affordable telephone services, Muhammad Yunus established two entities in the 1990s: Grameen Telecom and GrameenPhone. Grameen Telecom is a not-for-profit organization which provides telephone services in rural areas as an “income-generating” activity for Grameen Bank members. Through its Village Phone program, rural entrepreneurs buy mobile phones with the money borrowed from Grameen Bank and sell phone services to people in the village by the call for higher rates (usually twice the wholesale rate). GrameenPhone is a for-profit company and now has about 50% of the nation’s mobile-phone market. Grameen Telecom owns 38% of the shares of GrameenPhone, and the other 62% is held by Telenor, a Norwegian telephone company.

GrameenPhone’s IPO is also expected to bring a positive effect on the financial market in Bangladesh. Since the stock market crash in 1996, the Dhaka Stock Exchange (DSE) has been struggling to rebuild its credibility and investor confidence. Although the market has been recovering for the past four years, the market capitalization of the DSE is only 16% of Bangladesh’s GDP. However, analysts hope that GrameenPhone’s successful IPO would encourage other big firms to list on the exchange. On the day GrameenPhone opened the IPO, Bangladeshis opened 28,000 new broking accounts, and the stock market hit a 13-year-high on October 8th.

Discussion Questions:
GrameenPhone is owned by a for-profit company (Telenor) and a non-profit organization (Grameen Telecom). Given that Muhammad Yunus established GrameenPhone in order to benefit the poor, what could be the advantages and disadvantages of this type of ownership structure? Would there be any possible conflicts between Telenor and Grameen Telecom? If so, how could those problems be solved?

No comments: