Somaliland Telecom IPO Is Dangerously Unregulated

The initial public offering of SOMTEL in Somaliland is a continuation of the Dahabshiil Group’s effort to offer shares to the public that started in Somalia in 2018.

At the annual investor meeting that was held in Mogadishu concurrently with the Somaliland event, the company opened a second round of investment in SOMTEL for the public in Somalia.

At the well-attended IPO event of SOMTEL in Hargeisa, Somaliland, the company founder Mr. Mohamed Saeed Dualeh, using a camel milking analogy to describe the company spoke of how he held off taking the company public and that now was the right time to offer the public an investment opportunity.

The President of the Republic of Somaliland as well as much of his cabinet and the leaders of the opposition parties attended the ceremony at which they all offered words of encouragement and appreciation for the Dahabshiil Group, and particularly the founder, Mr. Mohamed Saeed Dualeh.

In addition, the President reiterated Somaliland’s commitment to free trade and enterprise and described the role of the government in terms similar to that of a simple traffic cop.

The investment ecosystem and the laws that govern it in Somaliland, although complete, have not been passed by Parliament and are thus not yet in effect – and that puts both investors and companies at risk. This with the Dahabshiil Group and its public offering of SOMTEL shares, this brings up more questions than answers about the company and its share offering.

In many countries, once a company goes public its shares are considered a financial instrument and are subject to strict regulation and a financial regulator such as the US’s Securities and Exchange Commission have significant oversight and require companies to meet basic criteria before taking a company public.

These factors include the availability of detailed financial information about the company such as valuations, how many shares the company intends to sell, ‘Earnings Before Interest’, ‘Taxes’, ‘Depreciation’, and ‘Amortization’ (EBITDA) and more.

With the Dahabshiil Group’s IPO of its SOMTEL company, however, the investors have not been provided with any information about the company such as the valuation or financial health including debt, and exactly how many shares the company will sell to the public or who will maintain a controlling share of SOMTEL.

According to SOMTEL Somaliland Shares, a website set up by the Dahabshiil Group, the price of one share of SOMTEL is 100 US dollars, and the minimum number of shares an investor can buy is 20 while the maximum is 1000.One of the biggest unanswered questions about the SOMTEL IPO then is the valuation of the SOMTEL company, or how much the company is worth – and without this basic financial information investors are at a major disadvantage and their ability to make an informed decision if the stock is indeed worth 100 US dollars is severely compromised.

What makes a company valuable or worthless is its financial health, profit, and loss statement as well as its market share of the Somaliland telecommunication market, the last point of which SOMTEL has been struggling with against its much larger competitor TELESOM.

Knowing the number of shares being sold answers an important question for a public company and that is who controls the company, which is generally the majority stockholder.

How many shares the Dahabshiil Group is willing to sell to the public is even more pertinent since it has been offering shares in Mogadishu since November 2018, and has just begun doing so in Somaliland.

Without sharing this very basic information, the company may be able to sell an unlimited number of shares and may have, in essence, got a license to print money. Simply put, offering shares of SOMTEL may be more lucrative for the Dahabshiil Group than the company is worth.

In a more basic sense, the number of shares being offered is how investors would know exactly what percentage of the company they own.

Without the regulation that compels a company to reveal financial data as well as the number of shares or percentage being offered to the public, nothing stops Dahabshiil or any other company from selling an infinite number of shares.

In the limited information published on SOMTEL Somaliland Shares, there is an odd clause that states that 20% will be the company’s service charge, which means Dahabshiil is charging 20 US dollars for each share sold. This is a point confirmed by multiple investors who have purchased shares of SOMTEL shares.

What makes this 20% service fee odd if not outright predatory is the fact that an investor regardless of how many shares of the company they own is sharing the risk, potential gain, the operating cost, and the holding company or operator does not charge them a separate fee to run the company for them.

Unless the Dahabshiil Group is selling 100% of SOMTEL to the public that brings up more dilemmas for the investors.

In other words, Facebook does not charge a service fee to purchase its stocks, but a stockbroker would charge a one-time transaction fee or a commission, usually around 10 US dollars regardless of the size of the transaction

The owners of Dahabshiil Group have worked in many international markets and are aware of how stocks work outside of Somaliland’s embryonic investment ecosystem, and that companies do not charge their investors a 20% premium to own their stock.

In the case of Somaliland where stock brokerage services do not exist yet, the Dahabshiil Group will be the custodian of the shares it is has sold to the public.

There are many ways of looking at the 20% service fee the Dahabshiil Group is charging SOMTEL investors but the one that concerns the investors the most is that they are taking a 20% loss just for the privilege of owning SOMTEL stocks.

The Dahabshiil Group did not respond to our questions below for this report

1. How many shares are being offered to the public?
2. What is the current valuation of SOMTEL?
3. What is the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of SOMTEL?
4. The limited literature published on https://somtelsomalilandshares.com/ points to a 20% service fee. Is this a 20% fee per share of $100 and could you provide more information on the 20% service charge.
5. What is the current market share of SOMTEL in both internet and mobile phone in the Somaliland market?

This article first appeared in the Somaliland Chronicle and is republished with permission