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Uganda: Safaricom Doubts in the Face of Biggest IPO Ever
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The Monitor (Kampala)
OPINION
6 April 2008
Posted to the web 7 April 2008
Martin Owiny
Kampala
The biggest stock market Initial Public Offering (IPO) in the history of East Africa is underway. It's quite interesting, but more than ever before as an investment professional my phone and email has been abuzz with calls from relatives, in-laws, friends and business associates inquiring as to the best way forward with this IPO.
Because the inquiries have been so intense I decided to put together some "food for thought" for Ugandan's who are considering investment in the Safricom IPO.
Safaricom Ltd is owned 60% by the Kenyan government and 40% by Vodafone Kenya Limited. Vodafone Kenya Limited is owned 87.5% by Vodafone and 12.5% by Mobitelea.
At this IPO the Kenyan government is offering 25% of its holding in Safaricom, with each share valued at Ksh5 which is roughly equivalent to our Shs125. The minimum shares that one can buy is 2,000 which is also roughly equivalent to Shs250,000.
This brings the value of the company to in excess of Shs5 trillion which is 10% of Kenya's Gross Domestic Product. This equates to approximately 25% of the total value of shares on the Nairobi Stock Exchange, which is also equivalent to 50% of Kenya's total debt and a quarter of its total money supply under M3. Please bear in mind that Kenya's economy is about three times the size of that of Uganda's economy.
Safaricom which was formed in 1997 has an 80% market share in Kenya with approximately 10 million subscribers. What makes this company so attractive is the fact that this is occurring in a country where mobile phone penetration is only 33% leaving substantial room for growth of the company because in the developed world mobile phone penetration is well in excess of 80%.
Further to this with such dominance in the market it is cheaper for a customer to own a Safaricom telephone line because most of the phones one would be calling inside Kenya would be Safaricom telephone lines, thereby translating into increased revenue and possibly profitability for the company. The attraction in all of this is that through this IPO we are all being given an opportunity to share in this profitability. Profitability which incidentally is highest among all of East Africa's companies.
All this is occurring against the background of sound managerial skills within the company. So innovative has this management been that Safaricom has been able to set up mobile phone banking services where you are able to transfer funds through your cell phone to different places within the Kenya.
However, is the picture all rosy? As one considers investing in the Safaricom IPO one would have to be satisfied with the political risk of investing in Kenya. How sure are we that the different political groupings will not be at it once again? And should violence re-occur how long will it be before things calm down again?
In this regard I have met quite a wide array of investors. There is the category that looks at this political risk as an opportunity. They are confident that such risk presents an opportunity because it scares away many a conservative investor from the playing field.
There is also the category of investors that have chosen as a result of this risk, to down size their funds being allocated to Safaricom in favour of alternative investments such as the Uganda Clays rights issue and the upcoming New Vision rights issue on the Uganda Securities Exchange.
The question is in which category do you fall?
The reality is that Kenya's economic growth and thereby Safaricom's growth in profitability is hinged to political stability. With stability shareholders may be laughing all the way to the bank, however should the situation turn out otherwise, the prudent thing for the same shareholder to do, may be to hold their share for a longer period of time. Is it therefore time to visit your stockbroker or fund manager to discuss your strategy?
One also needs to consider the fact that one's shares in Safaricom are held in a different currency -- the Kenya Shilling. The rate of the Kenya Shilling against the Uganda Shilling has been known to fluctuate sometimes quite aggressively. For example, this week the Uganda Shilling did lose some value against the Kenya Shilling. One therefore needs to bear in mind the fact that the exchange rates between these two currencies may differ at the time of buying and selling their shares. Would this therefore translate into a profit or a loss?
At another opportunity we will explore additional pros and cons of this venture, for example how many of us can be certain we will get all the shares that we bid for, further to that there is the reality of the stock markets! That is, prices go up and they come down based on market forces. Therefore, the reality is the price of the Safaricom share can go any way, much as there is a category of investors who vouch that it will never go below the IPO price.
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Mr Owiny is general manager of Stanbic Investments, East Africa
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