Initial public offering (IPO) for Tanzania Precision Air ( du 21/09/2011)

Local investors will get 51% of floated shares and foreign investors will get the balance. IPO will offer discount to book value-broker. Airline will spend $11 mln on aircrafts.

Tanzania’s Precision Air will allow foreign investors to buy up to 49 percent of its initial public offering (IPO) next month, according to a prospectus for the airline’s planned share sale.

Local investors in east Africa’s second-largest economy have been allocated a minimum of 51% of the IPO.

« The remaining 49% can be allotted to Tanzanian persons and non-Tanzanian persons. Tanzanian persons are, however, not permitted to buy these additional shares on behalf of non-Tanzanian persons, » the prospectus said.

The sponsoring broker for the IPO, Orbit Securities, said in a letter to investors the pricing of the offer at 475 shillings per share represented a discount of 11.6 percent to the airline’s fair value.

« The strategic partnership with Kenya Airways entered in 2003 has transformed Precision Air Services into a professionally run modern regional airline, » said Orbit Chief Executive Laurean Malauri.

Kenya Airways owns 49% of Tanzania’s biggest airline, the remaining majority stake is owned by Michael Shirima, chairman and founder of the airline.

The shareholders will see their stakes diluted after the IPO.

Subscriptions to the issue of 58,841,750 shares run from Oct. 7-28, with the airline scheduled to be listed on the Dar es Salaam Stock Exchange (DSE) on December 8.

The prospectus said Precision Air has registered an annual growth of 27% since 2003, with total passenger traffic rising to nearly 700,000 in 2010/11.

« The projection in the airline’s current financial year is to uplift 965,214 passengers, equivalent to a 44% increase until the end of the season in March 2012, » the prospectus said.

Fleet modernization. The airline plans to raise close to 28 billion shillings ($17 million) from the IPO, with the funds to be largely used to finance the modernization and expansion of its fleet.

Precision Air has 11 aircraft, which includes nine ATR planes and two Boeing 737-300 series aircraft.

The airline said it plans to spend a total of 18.2 billion shillings of the capital raised from the IPO for fleet expansion and acquisition of aircraft spare parts.

It will also invest in opening and developing new routes, training flight crews and engineers, ground handling equipment, information systems and the enhancement of its working capital.

The airline holds about 65% of the local market share and became the country’s dominant airline after the gradual collapse of state-run national flag carrier Air Tanzania.

Precision Air, which employs some 600 people, saw its assets soar from 23.9 billion shillings in 2006 to 239.7 billion shillings in 2011.

Operating profit has jumped from 7.74 billion shillings to 11.92 billion shillings over the past five years.

Risks listed in the prospectus obtained by Reuters include fluctuations in fuel prices and the exchange rate.

« A substantial portion of the company’s total expenditure comprises fuel expenditure. Increases in the fuel price will increase the company’s expenses and hence reduce the company’s profitability, » said the prospectus.

Fumbuka Ng’wanakilala


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