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Kenya: Adviser Warns Investors of Pitfalls in Safaricom
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The East African Standard (Nairobi)
28 March 2008
Posted to the web 28 March 2008
Standard Team
Nairobi
Lead Transaction advisers to the Safaricom Initial Public Offer (IPO) have cautioned prospective investors of unforeseen risks that could undermine on the company's share price.
According to a prospectus seen by The Standard, on Thursday, the mobile phone company faces more issues than just the risk factors relating to its business and the mobile telecommunications industry.
The lead advisers are Morgan Stanley and Dyer and Blair Investment Bank owned by NSE chairman, Mr Jimnah Mbaru. Mr Michael Joseph is listed as the firm's CEO.
The report says there exists additional risks and uncertainties, which, although not known to the company or believed to be significant may have a material adverse effect on Safaricom's financial condition or business success.
And it adds, if any or a combination of these risks actually occur, the company's business, financial condition and operating results could be affected.
"If this occurs, the price of Safaricom's shares may decline and investors could lose part of or all of their investment," says the report.
The advisers cautioned investors against investing in Safaricom prior to considering the risk factors relating to the company and the mobile telecommunications industry with all other information in the prospectus.
The advisers warn that the company is prone to serious competition from other operators. The company may also face further competition upon the entrance of a second national operator or the launch of services by regional telecommunications operators.
The growth of the company's customer base will, in the medium to long term, become increasingly vulnerable to saturation.
As a result, the growth in the company's customer base may be significantly lower than in the past.
Other risks factors, which could threaten the company's future profitability include controversies surrounding its shareholding structure, litigation relating to the offer whose outcome is still uncertain, restrictions on foreign ownership of the company shares and the uncertainties engulfing the company's future dividend policy.
The Government is also not in a position to predict whether investor interest in Safaricom will lead to the development of an active trading market on the NSE or otherwise how liquid any market that does not develop might be.
The offer price was determined by consultations between the Government and Lead Transaction Advisers and may not be an indicator of future prices.
Safaricom has strengthened its leadership in the mobile market over the past five years increasing its market share to 80 per cent last year from 57 per cent in 2002.
However, it is expected that new entrants could erode part of the market share.
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In Mombasa a stock broker assured potential investors that the deal was real and that Safaricom was a financially sound company.
"There are those with reservations over the sale. Their argument is particularly strengthened on the basis of the objection to the sale offer by some parties," a branch manager with Discount Securities Limited, Mr Benson Otieno told The Standard.
"We are advising our clients adequately on the Safaricom deal. Clients have been coming to inquire on when the sale would kick off and the number of shares they can buy," Otieno said.
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