The best-laid plans of mice and men often go awry," said poet Robert Burns.

Airtel Africa Ltd, a step-down subsidiary of Bharti Airtel Ltd, had set itself up nicely for an initial public offering (IPO) on the London Stock Exchange. The unit’s profit margins have improved sequentially each quarter for the past 19 quarters, and absolute profits have risen by about 50% during this period.

What’s more, when the company went around looking for pre-IPO investors last year, it managed to sell shares at a significant premium compared to analysts’ estimates. In all, it sold shares worth $1.45 billion at $1.485 apiece.

In that backdrop, it wasn’t surprising that news reports suggested Airtel Africa is looking at raising $1 billion in the planned June IPO. But closer to the IPO date, things have been underwhelming. The company first said it will raise up to $750 million, and has now added that it has set a price range of 80 to 100 pence per share for its IPO.

That represents a 15-32% discount compared to the price the company sold its shares in the pre-IPO placements, using current exchange rates.

Airtel Africa’s latest financials show that its profits haven’t deteriorated since the time it sold shares to pre-IPO investors.

As such, the lower pricing has more to do with market conditions rather than company-specific concerns, says an analyst at a domestic institutional brokerage firm, requesting anonymity.

The number of IPOs in London for the first six months of the year is at its lowest in 10 years, with the primary market also coming under the shadow of Brexit.

“The relatively lower pricing of Airtel Africa’s IPO reflects difficult market conditions for an IPO currently, besides an Africa discount," said another analyst at an institutional brokerage firm on condition of anonymity.

The Africa discount refers to the costs associated with relatively higher regulatory and policy risks associated with operating in some African markets.

To be sure, Bharti Airtel has done well in the past few years to exit some unprofitable markets and turn around its overall Africa portfolio.

Having said that, the lower IPO pricing reduces the overall valuation of the Africa business, and impacts the market value of the Indian parent to that extent. “At the mid-point of the IPO price range, this would imply a negative impact of about 10 per share on Airtel’s valuations," says an analyst. This is less than 3% of Bharti Airtel’s current share price.

That isn’t much to worry about. Talking of regulatory and policy risks, Indian telcos have been hit with costs that are far higher in the domestic markets.

On the flip side, Bharti Airtel’s plan to go ahead with the IPO despite the lower valuation is a positive as far as its intent on deleveraging plans go.

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