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Kenya: As Share Sale Opens, Hope And Despair
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The Nation (Nairobi)
28 March 2008
Posted to the web 28 March 2008
Washington Akumu
Nairobi
Today, the public gets a chance to own the most profitable firm in the region, with the official launch of the Sh50 billion Safaricom initial public offer (IPO).
President Kibaki is expected at the function, to be held at the Kenyatta International Conference Centre (KICC).
Priced at Sh5 per share, applicants need just Sh10,000 to own a part of the firm that made Sh17 billion in pre-tax profits last year. With the operator recording Sh15 billion in the nine months to December, the annual take is likely to be higher.
Some 10 billion shares will be put on the block in what is easily the biggest divestiture in sub-Saharan Africa this year.
But as the promoters go out on a limb to pitch for the offer through which the Government will be ceding 25 per cent of its stake in the country's leading mobile telephone firm to leave it with just 35 per cent, another drama will be playing out in the city.
The main actors in this script are the 120,000 or so mostly small investors who had bet their money at the Nairobi Stock Exchange through Nyaga Stockbrokers. The Nairobi rain notwithstanding, they have been making a beeline outside Nation Centre daily to either get their cash back or transfer their accounts to "safer" brokers, and are sure to be there Friday.
Nyaga, which was popular among retail investors, was taken over by the NSE and market regulator Capital Markets Authority about a fortnight ago after it emerged that it could no longer honour its financial obligations.
The red flag had been hoisted much earlier, as witnessed by bouncing cheques as early as last year, amid spirited denials by CMA and NSE. Add to this last year's identical troubles at Francis Thuo and Partners, another suspended broker - and the recent revelation that three other players are barely hanging on conditional licences - and you have the ingredients for what could be a systemic collapse at the stock market.
Kenya's capital markets, especially the NSE, could be facing their biggest confidence crisis since the bourse was formed in 1954, as an appendage to the London Stock Exchange.
It is hardly the backdrop the promoters of the IPO would have wanted. While the buildup to the IPO has largely been positive, the Nyaga Stockbrokers' debacle has cast a dark spell over the NSE.
Even then, the jury is still out on whether this could blunt public appetite for Safaricom shares. Such has been the interest generated by recent IPOs - all of them oversubscribed - that it is doubtful if the financial problems at some brokerage houses could translate into a low shares uptake.
"I have no doubt that the Safaricom IPO will be a resounding success especially for a cash-strapped government desperate for revenue, and the brokers and bankers who will process applications for shares during this 'once in a lifetime' opportunity, regardless of the suspension of Nyaga Stockbrokers," says Andrew Franklin, a capital markets consultant.
Many analysts agree. Said James Murigu, managing director at Suntra Investment Bank and a veteran of IPOs: "You can argue that since (the) KenGen IPO, many of our people have become hooked to the stock market after seeing its benefits. The crowd has become bigger. Safaricom is a company whose business is easy to understand. Its 10 million subscribers deal with it on a daily basis. And with innovative products like M-Pesa, its prospects look good."
He is convinced that many punters will be on the lookout for Safaricom shares due to the loans that banks like Equity are aggressively flaunting. Access to the shares could also be improved by the flurry of agency agreements that have been signed between brokers and banks.
Still the backdrop could be hardly inspiring, and many market players acknowledge this.
While the sheer pull of an IPO - especially one priced as low as Sh5 - is likely to prevail over the plight of a portion of the 120,000 investors whose shares have been traded without their consent by Nyaga Securities, the broker's financial woes raise serious issues that will have to be tackled aggressively if public confidence is to be restored.
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According to NSE chairman Jimnah Mbaru, this has been compounded by the fact that the market has developed and modernised too fast, overtaking regulation in the process. He cites the most common accusation against Nyaga Stockbrokers - selling client's shares without consent.
"This is, plainly put, theft. It should have been criminalised by now and the right punishment prescribed in law. Largely, the Capital Markets Act has remained unchanged even as the market exploded in an unprecedented burst of growth, starting in 2003 and later peaking through the KenGen IPO," he told Nation in an interview.
The 2006 sale by the State of a 30 per cent stake in the electricity generator is considered a watershed. It brought a huge number of small, most of them virgin investors, into the stock market. In one fell swoop, stock trading was transferred from its elitist mould and introduced into the language of matatu passengers.
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