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Kenya: A Tale of Two Prospectuses
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The East African Standard (Nairobi)
ANALYSIS
29 April 2008
Posted to the web 29 April 2008
Kenneth Kwama
Nairobi
A revised Safaricom prospectus raises eyebrows as it borders on reneging on a sworn affidavit that's binding.
As the curtain falls on Safaricom initial public offering (IPO), there has emerged some glaring regulatory weakness that put to test the credibility of the Capital Markets Authority (CMA).
Market information filtering through indicates that the sponsors of Kenya's jewel, the Government, had quietly sneaked into the market another prospectus without caring to inform thousands of investors that it has withdrawn the earlier prospectus.
And to make matters worse, the new document that details all about the giant mobile operator, contains mew information, distinctly different from the one that was approved by regulatory authorities for its Initial Public Offer (IPO). Though the CMA officials disclosed to the FS that the changes were minor and a formality that was meant to meet international accounting standards practices, sceptics, however, contend that the action was in contravention of the law and puts further dents into claims the process was above board.
It has also emerged that the CMA had approved the initial prospectus dated March 14, which was presented to investors despite the fact that the financial statements contained therein were neither approved by Safaricom's directors nor the independent auditors, PriceWaterhouseCoopers (PWC).
Also buried within the deck of the revised document's financial reports may be a kernel of truth about the understandable rush by both the players in the industry and the Government to bring the IPO to the market regardless of whether their action contravened the same laws strive to uphold.
Interestingly, there seems to be a conspiracy of silence within the capital markets, with players, including the Nairobi Stock Exchange (NSE), either keeping quiet or ignoring the issue altogether.
The anomalies have, however, been corrected in the revised prospectus, dated March 28, 2008. The revised document contains the PWC seal of approval and the signatures of Mr Nicholas Nganga and Ms Nancy Macharia, directors who approved the financial statements on behalf of Safaricom.
"The interim financial statements on pages 163 to 185 were approved for issue by the board of directors on March 4, 2008 and signed on its behalf by " reads a statement on page 165 of the revised prospectus.
The second prospectus contains what experts refer to as "material information changes" or alterations to the original information given, which they insist must get CMA approval before being released to the public.
The wording used in the initial prospectus also varies with those used to introduce financial statements contained in the revised document. While the initial document refers to "financial statements of Safaricom Ltd, the revised version calls it "the condensed interim financial statements."
The rush to bring the IPO to the market has raised several claims, including unproven claims that the Government could have been rushing to finish the IPO within a set deadline for reasons not known to the public.
The anomaly and its potential to poke further holes into the transparency of the Safaricom offer are great. Observers say it might also portray the issue in a decidedly different light.
But the CMA maintains that approval of the initial prospectus was clean and that no laws were broken regardless of the fact that a revised prospectus was issued. It's also not clear whether it went through the normal vetting process as required by accounting rules.
"All the information was verified by the reporting accountants - Deloitte and Touche -, and forwarded to PWC, which is the independent auditor," says a highly placed source from the CMA who did not want to be named.
Under these circumstances, the external auditor's brief includes examining whether the financial statements are in conformity to International Financial Reporting Standards (IFRS).
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According to this source, the reporting accountants (Deloitte and Touche) verified that PWC complied with the IFRS, then presented a draft financial report, which was used in the initial prospectus.
"If you look at both documents, you'll realise that the figures have not been altered. The information is about the same and we (the CMA) issued a public notice notifying the public of the addendum (additional information) through the press," he says.
The officer adds that the CMA directed the issuer (Safaricom) to issue notices of addendum equal in number to the number of prospectuses in circulation. FS could not verify whether there was any compliance to the requirement because both the investors and experts contacted said they were not aware.
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