Heads of the Authority in charge of regulating capital markets have defended their decision to permit the state-owned Ethio telecom to conduct its landmark initial public offering (IPO) through its Telebirr application ahead of the imminent launch of the Ethiopian Securities Exchange (ESX).

The Ethiopian Capital Markets Authority (ECMA) say Telebirr’s know your customer (KYC) and security features as well as its simplicity make it an ideal vessel for offering 10 percent equity in Ethio telecom to the general public. Experts and analysts, however, warn that low financial literacy and unfamiliarity with securities trading could spell disaster for potential investors.

Prime Minister Abiy Ahmed launched the IPO on October 16, 2024, during a ceremony at the Sheraton Addis, where 100 million shares in the state-owned giant were put up for sale at a value of 300 birr per share.

Investors can acquire a minimum of 33 shares in the company for 9,900 birr or a maximum of 3,333 shares for close to one million birr. The IPO is taking place solely through Ethio telecom’s Telebirr application and is scheduled to last through January 3, 2025.

Potential investors can apply for equity through Telebirr, and are required to submit payment for their bid within three days of the offer. The payment will also include a 1.5 percent service fee and the applicable value added tax (VAT), according to a statement from the operator.

Only Ethiopian citizens are permitted to purchase equity in Ethio telecom, and the company reserves the right to select which prospective investors will be allocated equity following their application and payment through Telebirr.

Ethio telecom executives and government officials hail the unconventional method as equitable and inclusive, but analysts warn of risks involved in using Telebirr to conduct the IPO. Some question the application’s capacity to handle such a large volume of applications and transactions efficiently.

Hanna Tehelku, newly appointed ECMA director-general, said the Authority endorsed the decision to use Telebirr due to its efficient KYC capabilities.

“The application also has elements of brokerage and dealership services not offered by banks, insurance firms, or other financial service providers in Ethiopia. That is why Telebirr was chosen for share issuance,” said Hanna.

Financial experts, however, caution the need to take measures against possible risks in investor education, security, and transparency. They urge the Authority to be on its guard to guarantee a just and safe market space.

Particularly for novice investors, the quick uptake of Telebirr for mobile money transfers may not always translate into a profitable stock market involvement, they warn. The experts observe that many Telebirr users have never engaged in stock trading before and that inadequate financial literacy may result in poor choices and, in the worst scenarios, monetary losses.

The terms of the offering dictate that once bought, the shares will be subject to a lock-in period during which they cannot be sold or traded until Ethio telecom is officially listed on the ESX.