Business Daily (Nairobi)
15 June 2008
editorial
The latest twist in the battle for refunds from the sale of Safaricom shares through an initial public offering can be unfortunate.
Unfortunate because it represents a belief among those who run our capital and financial markets that they know what is good for ordinary Kenyans who have entrusted them with their money.
In this latest plot by brokers and banks, investors who are still reeling from the gross disappointment of having failed to get even half the number of shares they applied for, are being unduly prevented from getting back their cash.
After fighting hard for the job, it is now emerging that the consortium or banks that acted as receivers of the Safaricom cash are spending all their energy trying to shield themselves from incurring the heavy cost of the refunds process.
Because of the massive cost and the logistical challenges involved, the receiver banks are not posting refund cheques directly to the investors.
They have instead chosen to deposit loads of cheques in the offices of brokerage firms, many of who lack the capacity to speedily sort them out for onward disbursement to their clients.
Yet the Safaricom IPO was not supposed to be this way. This refunds crisis is one that had long been anticipated and suitable arrangements made to avoid its recurrence.
To cut back on the logistics needed to pay the refunds, investors had been asked to provide details of their bank accounts when applying for the shares. This was to enable the receiving banks wire the refunds directly to the investors' accounts.
But it is now emerging that some brokers had a different plot. They passed on the investors' details to the receiving banks minus the information on their bank accounts. This has made it impossible for the receiving banks to completely pay the money directly to the investors forcing them back to the brokers.
Here, investors are being forced not only to suffer the inconvenience of playing the waiting game as brokers sort out the loads of cheques. They are also being arm twisted into schemes that the brokers have hatched in collaboration with some financial institutions to unnecessarily delay the payment process and incur additional costs.
In refusing to pass on the bank account details of their clients to the receiving bank, the brokers were clearly angling for a windfall from the refunds.
The scheme is that as in the past, the receiving banks return the cheques to the brokers. The brokers then, as they have in the past, simply ask the investors to endorse the cheques in their (brokers') names.
This would enable the brokers to liquidate the cash and ask the investors to let them use the money to buy shares in the secondary market.
That brokers and collaborating banks are working extra time to sidestep the ban that Capital Markets Authority and the CBK have imposed on third party cheque endorsements only points to the extent they are ready to go to realise their objectives.
Who could have imagined that investors would be forced to open bank accounts for purposes of clearing one cheque that may be worth only Sh7,500.
For all this trouble, the bank will obviously charge a fee for processing the cheque only to deposit the money in the broker's account.
Besides, some of these banks are certainly going to charge account ledger fees and even terminal fees should an investor ultimately decide to do so.
These shenanigans of the stockbroking industry all point to the fact that apart from the reform measures that Finance minister Amos Kimunya announced in the budget last Thursday, it may be necessary to involve the CBK in the regulation of stockbrokers. These group of firms is holding too much public money to let loose as they currently are.
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