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Kenya: Safaricom IPO Has Cost Ugandans Four Percent Investment
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New Vision (Kampala)
OPINION
24 July 2008
Posted to the web 25 July 2008
Carlos Odora
Kampala
Ugandan investors have reason to be angry with the recently concluded Safaricom IPOs that have turned out to be costly as bankers' cash heavily on the unfavourable exchange rates.
Investors started to sense uncertainties when brokerage firms failed to pay refunds as committed publicly. Ironically, local Kenyan investors were receiving their refunds promptly by brokerage firms such as the Equity Bank, which honoured their pledge to do so, processing refunds within 48 hours of the offering. In Uganda, all sorts of excuses, including the usual transfer of blame, were given as firms avoided responsibility for their weak in-built capacity to handle capital markets.
Ugandan investors, will lose approximately 4.7% of their total committed investment. Such investors can only anticipate a future appreciation of the share to Ksh8 so as to breakeven, otherwise they could as well count a loss and call it quits.
At the time of the offer, local investors were influenced by previous gains made in other local IPOs such as Stanbic Bank and Uganda Clays. Then, few investors participated and were allocated almost entirely all the shares they applied for and when the trading of those stocks commenced, the values appreciated substantially. Such success deluded common sense to query the possible likelihood of any traps that were deceptive, instead it fanned the flames to rush and make exorbitant gains.
What went wrong and why were the Ugandan authorities not in position to foresee this scam?
The Safaricom IPOs deluded most Ugandans who interpreted the East African exercise as their first step towards regional integration to the Common Market and, therefore, went on to vote for this offer in big numbers as their patriotism was propped. What Ugandans failed to see were the eminent blind spots; some interpreted the Tanzanian absconding from the offer as an opportunity to make their kill.
In the absence of the investor's own wisdom to protect them, one would expect regulating authorities such as the Capital Markets Authority and the Central Bank to direct whatever outcomes emerge from such regional interest with the view of protecting Ugandan resources.
Besides, its common knowledge that capital markets and the way resources flow are still elusive concepts in the emerging markets and leaving them to operate unchecked predisposes nascent structures such as the Ugandan securities to unfavourable opportunistic players.
In the Safaricom case, it is obvious that Ugandan investors will suffer huge losses which is a shame to the regulating institutions for lacking the competence to foresee the blind spots and protect them.
The unfair exchange rates and the massive oversubscription worked against Ugandan investors who naively could not perceive the looming threat. Left with no defences to their unwarranted speculation, they queued with high hopes of gaining, which was to the contrary. Ironically, down south, the Tanzanian authorities foresaw the scam and moved quickly to close out the danger. The Tanzanian investors never had a chance to participate in the Safaricom offer and, therefore, the citizenry never lost out on any savings.
Lessons for Ugandans from Safaricom is that not every investment in an IPO will lead to cashing in. As it was common talk then, ordinary people encouraged each other to invest in Safaricom touting " you cant go wrong with IPOs" to the extent that they overlooked the obvious exchange rate, and paid heavily with 4.7% of their investment scammed.
In the absence of local wisdom to fathom the future, Ugandan authorities should have seen what was coming as their counterparts did in Tanzania and were able to avert their citizenry losses. In any case, why should Ugandans pay them to keep their jobs?
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