6/4/08

Kenya's Safaricom IPO disappoints small investors

Kenya's Safaricom IPO disappoints small investors

By Rebecca Wanjiku , IDG News Service , 06/04/2008

Retail investors are feeling like losers in the IPO for Safaricom, the most profitable company in sub-Saharan Africa.

When word came out that the government was offloading part of its shares in mobile-phone company Safaricom, there were mixed feelings -- some felt it was their opportunity to make profits while others thought it was a chance for the rich to get richer.

Financial institutions went on the overdrive, advertising unsecured loans and inviting all Kenyans to own a stake in one of the country's most successful companies. There was a 2000-share minimum request per person for retail investors.

Those advertising for loans to buy into the Safaricom IPO (initial public offering) had indicated that with the 2,000 shares minimum allocation, one could make huge returns instantly. Advertising agencies made huge profits in the advertising blitz that dominated Kenyan media in April.

Last week, 860,000 retail investors got a shock when they learned that they were allocated 21 percent of the shares they had requested. This dashed the hopes of those who thought they would make profits -- many had obtained loans from banks at 15 percent interest payable within a certain period.

With the 21 percent allocation, retail investors are more likely to have to hold on to them until the share price rises significantly, in order to pay back loans taken out to buy into the IPO.

It is expected that the banks will make profits because they continue charging interest in any case, said Fred Mweni, the managing director of Tsavo Securities.

According to the allocation schedule, qualified institutional investors will receive 31 percent, Safaricom dealers 31 percent, employees 84 percent and international investors 31 percent on average, of their applications.

The opportunity to make huge returns on investments was hyped by the banks and many people endured long queues to apply for the shares. It was a raw deal for the ordinary person, says Richard Onyango, an investor.

The banks, however, are not charitable organizations but in the business of making profits, according to John Wanyela, executive director of the Kenya Bankers Association. He argues that the banks were fulfilling their role in the market by offering unsecured loans.

There should be a law to ensure that what is quoted as the minimum allocation (in this case 2,000 shares) is not revised downwards, says Mithika Linturi, a legislator and a member of the Public Accounts Committee (PAC). Linturi argues that the law should ensure that everyone gets the minimum allocation, then the subsequent allocation can depend with the amount invested. This, he said, would bridge the gap between the poor and the rich.

Seeking a share of the company were investors from the local market and an unspecified number of regional investors from Uganda, Rwanda and Burundi.

Finance minister Amos Kimunya denied accusations that the government had duped local investors, but acknowledged the IPO was structured to show the international market that Kenya is ready for business. While launching the IPO, the minister had assured investors that there were enough shares to satisfy demand.

The total worth of shares applied for under the retail category totaled 13.2 billion shillings (US$1.88 billion), with an oversubscription of 669 percent. Shares will start trading June 9.

Safaricom announced last month a record gross profit of 19.9 billion Kenyan shillings for the financial year ending March 31. The Kenyan Treasury and Vodafone Kenya will receive 2 billion shillings in proposed dividends. Mobitelea Ventures, the shadowy Guernsey-registered entity, is among the major indirect beneficiaries of Safaricom's sterling performance for the year ending March 31, 2008. Mobitelea, which holds a 12.5 percent share in Vodafone Kenya, will get about 100 million Kenya shillings in dividends since it owns 5 percent of Safaricom through its stake in Vodafone Kenya.








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