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Friday, January 19, 2007

IPO & OFS Allocations - Safaricom

There were interesting comments to my earlier post where I argued Kenyan should be favoured over foreigners (including East Africans).

IPO - Initial Public Offering - The funds raised adds to the equity of the Issuing Firm
OFS - Offer For Sale - The funds raised is paid to the Sellers e.g. Eveready & Mumias (2006)

ScanGroup was a combination of the above.

Let me clairfy WHY I chose the position I took:
  • Stanbic - Kenyans (among other non-Ugandans) were discriminated against i.e. they received a far smaller share of the OFS allocation. There is nothing wrong with the allocation since the Uganda government was selling its shares (10%) at a discount to "market value" thus it should favour its own citizens. It is their money after all!
  • Therefore, the Kenya Govt, should, in the same spirit, give Kenyans preferential treatment in IPOs or OFS where the Kenyan Govt is selling its shares or an IPO at a discount to Market Value.
  • Tanga Cement - Non-Tanzanians were locked out from the IPO/OFS. Valid, yes, but unfair to other East Africans in the spirit of EAC.
  • Therefore, the Kenya Govt, should, in the same spirit, give Kenyans preferential treatment. Shares will only be allocated to foreigners if there is an underscription from Kenyans.
  • Allocation Criteria should be spelt out as I argued in the earlier post by create various classes for the applicants:
  • Class A - Employees - as is they are always favoured especially in a new listing
    Class B - Kenyan Citizens - Since they "own" the government which owns the share so the ultimate owners (the citizens) should get priority
    Class C - Kenyan Residents - Similar argument to B except they are not citizens thus not as vested as citizens
    Class D - Ugandans & others who allow Kenyans to apply for IPOs, incl USA, UK, etc - Since they are part of EAC & have allowed Kenyans in their IPO/OFS (Stanbic)
    Class E - Everyone else (those who restrict Kenyans in IPOs, etc) - Includes the Tanzanians who locked out foreigners including Kenyans.

No, I am not picking on Tanzanians but they need to understand that ALL E.Africans need to cooperate for the greater good. Good progress has been made but nationalistic & populist politics still plays a nasty role. Kenyans can't give all the time while receiving little in exchange. Let's be treated as equals & with respect.

Tanzania for political reasons harassed Kenyan editors & journalists (Nation Media Group) for no good reason & on flimsy excuses! A successful partnership is Precision Air & KQ. KQ owns 49% of PAir while providing the financial & managerial backup needed. PAir has since become the largest Tanzanian airline & flies to the Mid-East while continously expanding its regional footprint.

Kenyans have discovered Uganda & Rwanda to be more hospitable. Increasingly, Kenyans are investing in these countries e.g. Uchumi, Bidco & Jubilee.

Uganda provided better benefits/conditions for Bidco than Kenya there Bidco opened a new factory & plantations in Uganda.

Private Firms (with no or little government stake) e.g. Eveready can do what they want in terms of allocation after all the Kenyan citizen's 'stake' is limited.


Louis said...

ok, i could also argue that by selling shares at a discount to some of its citizens the government is effectively short changing or favoring some citizens at the expense of others.

I think the public being shareholders its the govt's fiduciary responsibility to receive the highest possible return from publicly owned investments. Selling shares at a discount to the public is effectively transferring wealth from one class of citizen to the other (and i am not suggesting the govt is the best shareholder)

so in my opinion there should not be restrictions based on nationality rather it should be let to the market to decide buyer and seller.

Ssembonge said...

Share classifications should be taken in consideration of the portability of owners of the stock.

In your case, perhaps you mean that preferential allocation rather than classification of shares. For that reason, your classification would reduce the liquidity of the shares once trading commences.

There is nothing wrong with preferential allocation as long as this is stipulated upfront during the offering.

I would rather the government provides preferential tax treatment for capital gains and dividend income to Kenyan residents over non-residents instead of tinkering with share ownership. That way, none is given a competitive advantage in buying shares but the Kenyans are taxed less as most of their income goes into economic growth of the country benefiting other Kenyans.

pesa tu said...

Whether the UG/TZ gvts dont like us at the end of the day, their pension schemes have to invest in the kenyan market.Their markets are like our alternative exchange

coldtusker said...

Louis - True, but I would rather redistribution within Kenyans than to foreigners!

Ssembonge - Let foreigners buy, in the secondary market.

Ssembonge said...

Like in the US, the Kenyan government should ensure equality of opportunity rather than be involved in the redistribution of wealth or income.

The CMA should work hand in hand with treasury and the KRA to ensure that everyone is accorded equal opportunity (remember inside trading allegations) while the government does not take from the poor using the same measure it uses to tax the rich.

Odegle said...

coldi you have been a proponent of privatization and market forces. why the change of heart. the fact that they discriminated against us does not make it right for us to do the same

coldtusker said...

Odegle - I am all for PRIVATISATION...

The GOVERNMENT divestitures should favour Kenyans. Why? Since these are PUBLIC assets!
Examples: Safaricom, KenRe

Louis is right that this is is re-distribution among various classes but first Kenyans.

Secondary Markets should be open to all.

IPOs of PRIVATE firms should be open to all.
Examples: Equity, Eveready