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Wednesday, April 11, 2007

Safaricom to list offshore... What are they thinking?

Disregarding the valuations placed on Safaricom... but let's say 25% is worth KShs 30 Billion...

Please note the proposal is NOT about an IPO but an OFS (Offer For Sale) where the shares sold are already issued thus none of the funds goes/benefits the firm being listed.

Scangroup was primarily an OFS with a small component as an IPO. Eveready was an OFS. Kengen was an OFS as was the second tranche of Mumias.

This is an amount that can & will be easily absorbed by Kenyans. Approx KShs 27 Billion was collected during KenGen's OFS. Most of it was refunded.

Safaricom's profits are primarily from Kenyan subscribers (who have been ripped off for ages!) thus:
  • Kenyans should have the first RIGHT to buy shares
  • If Kenyans can't buy them then offer to foreigners
The "liquidity" fear is overblown. At most this will distort the market for 45 days but it is easily remedied/mitigated by:
  • Multiple receiving banks e.g. all corporate applications handled by Barclays, QII (pensions, etc) handled by KCB and all individual applications handled by Equity
  • The receiving bank opens an account with CBK for funds from the applications. These funds are used to lend funds to the "depleted" banks at the 30-day or 90-day T-Bill rate instead of the higher CBR (10%)
  • Most banks have excess funds in T-Bills substantially above the required liquidity ratios. The CBK can allow for repos at favourable rates during this period.
Opening/listing Safaricom on a foreign market will attract more foreign investors but the additional forex which hurts the exporters. There will be an influx from the diaspora among other investors & the forex should be snapped up the CBK to maintain an orderly market.

Mutual Funds, Unit Trusts & Pensions can & will support the broader market as they snap up "cheap" shares that retail investors sell to buy Safaricom!

Foreign investors should buy Safaricom on the secondary market... that means Kenyans can make more money!

At the end of the day, market forces will prevail... so let them be!

24 comments:

Jakarumba said...

I think the market can absorb Safcom without distabilising anything. Why should we share our diamond with foreigners? Remember how Uganda was protectionist during the Stanbic IPO?
I dont thionk any AMerican or Briton would even dare dream of selling their Exxon Mobil or Tibbett & Britten in the NSE.
I see TC's hand in that whole plot of off-shoring.

I will be able to get returns of the ceaseless rip off by Safcom if the IPO materialises.

Chipongwe said...

Its amazing how Africans, when they have nothing, rely on foreign capital to get them out of the mire, but when things are going ok the dont want a foreigner in sight!! Many of the emerging market booms around the World have been a result of foreign capital so Kenyans need to box clever, invite the foreigners in, be fair with the allocations, give them something, Safaricom needs a sustainable long term shareholder base. Listing in Kenya or out? You are right on - Safaricom belongs to Kenyans, it should list at home. The prospect of foreign capital might light a fire under the bum of NSE regulators and speed up the NSEs improvement PS I am not Kenyan

KE said...

Why is Safaricom doing it?

Is this free market capitalism at work? and if it is, what's wrong with that? Don't we live in a global economy now?

Udi said...

Nothing is wrong with listing on a foreign market. The experience from Kengen shows that Kenyan market cant handle subscriptions of that magnitude

@jakarumba- We are already sharing with foreigners. 35% IS OWNED BY Vodafone

coldtusker said...

Jaks - I agree. The only reason I think Safcon should be reserved for Kenyans in the OFS is coz the govt is selling the shares... probably at a discount to Fair Market Value.

Chip - No restrictions on secondary trading for foreigners. It is the "discount" to non-Kenyans I object to.

KE - Missed you... Primary market of govt (only govt/public) assets should be prioritised for Kenyans.

Again... secondary trading... all are invited to the party!

Udi - Kenyans have an appetite for SafCon. KenGen was oversubscribed by 200% i.e. 3x applications vs availability...

Ke said...

CT:

Shouldn't the government try to extract as much money as it can from wherever it can for the benefit of the public treasury?

The assumption would then be that the money raised, would then be used for the benefit of all kenyans in non-monetary terms (build better roads, upgrade the telecommuncations system, etc, etc)

Anonymous said...

i maintain like i did in banks' blog that the govt has to find the highest bidder including foreigners selling at a discount on the NSE is robbing the public or subsidising the meddle class and an unfair wealth transfer - what right has the govt of transfering ownership from 32million to a narrow group of the population.

its strange that kenyans are becoming jingoistic about foreign capital - foreign capital has a role to play in an economy especially a growing economy

Also im concerned about the valuation companies of similar size in africa have sold for much more soon on the surface im suspicious that a low valuation is a ploy to allow the political elite acquire shares on the cheap.

compare the valuation with the sale- celtel acquired 65% of vmobile which had 5million subscribers for $1billion so valuing safcom @ $1billion when it has 6milion subscribers is doesnt make sesne - also consider that bidders for licenses - license alone are offering $150m for the license alone.

anyway something aint right with this picture

Nimechoka said...

Safaricom should list abroad! It will help Kenyan companies improve on their reporting standards and expose our companies to globally acceptable regulatory/accounting standards. This is a forward thinking move - for the NSE and the local companies. It will expose kenyan companies to the global market.

Hopefully after this, foreigners can start investing in other local companies like E.A cables, Pan africa and other stable-well managed companies. We need this foreign listing - more foreign funds - boost the economy/competitiveness!!!

coldtusker said...

Should Safaricom list abroad - YES (after the OFS)

Should foreigners be allowed to buy shares at the "discounted" price - NO (the foreign capital is welcome after the OFS)

Should the govt try & get the BEST/HIGHEST price for the shares - YES (but there are political undertones that will NOT allow a sale of shares to "other" interests even if they offer a higher price)

Anonymous said...

coldtusker - i think this is your most disingenuous post.

you are suggesting that locals should be sold the shares at a discount and the resell to foreigners at a profit.

no only do i think its corrupt but goes against all laws of equity - the maximum benefit should accrue to the whole population in matters dealing with disposal of public assets.

coldtusker said...

Anon - Stop misquoting me...

The govt WILL sell the shares at a discount for political goodwill. This has been so for most OFS' in Kenya.

Pls note the "first" time around... pick any e.g. KQ, KenGen, KCB, NBK, etc...

Therefore, if the shares WILL be sold at a discount (regardless whether its the best deal for 30 Million Kenyans) then YES, Kenyans should have first crack!

Yes, let the Kenyans make money from the foreigners... nothing wron with that!

After all SafCon made the huge profits from Kenyans!

Louis said...

'kenyans' in this case is are the share owning class

now im a free marketer and i believe the free market is the best hope for africa - but the free market has to be seen to work and has to work for all the people not just a few.

now, im perhaps a little too passionate on this because i have seen this schemes before where govts masquerading as expanding markets and opportunities have
merely transfered wealth from one
class to the other.

in MOI's time the tool that was used the Treasury Bill - 30% interest rates - that was the single greatest transfer of wealth in kenyan history - ok maybe in the process the bond market was developed. but the net effect was impoverishment of large segments of the population.

the new administration has a different plan to expand share ownership by selling shares in public enterprises at a discount
that may sound great but really if you look at it really is transferring wealth from one segment of society to the other
maybe not as bad as 30% t-bills
but th net effect is widen the income gap - if u consider such resales of share are not taxed (no capital gains)

bottom line i think any sale of public enterprises should be sold to the highest bidder regardless of nationality.

i'm a freemarketer(whatever that means) - i believe the govt shouldnt be involved in business. I also believe economic nationalism is a bad idea and only benefits the economic elites of a country.

Odegle said...

i actually felt insulted by this announcement. that we cant handle safaricom? oh pliz! and by the way how do the foreign markets look at safaricom now and in the near future, would it be the same? what would happen if safaricom listed in LSE and then celtel listed locally what would that reflect in the minds of the subscribers?

coldtusker said...

Louis - Free Markets allow for automatic price setting... therefore the discounted prices are "distortions"...

For political reasons (generally not good)... the sale will be at a discount to FMV.

The secondary market is a "free-market"...

I do not fret over Mumias fall in price since the 2nd OFS (at 49.50) since it is a "free & fair" price determined on the NSE.

Sijui said...

Sorry but I join the 'reserved' for Kenyans bandwagon and here's why:
The problem with our economies is not attracting capital, the problem is ownership of capital. Until we develop a robust DOMESTIC capital base, we may as well fart in the wind regarding real prospects for a dynamic economy that ATTRACTS FOREIGN CAPITAL. This is not about the free market economy, THIS IS ABOUT BUILDING A BROAD MARKET ECONOMY that can accomodate and reward as many players as possible. There is little use to Kenya in selling a lucrative public asset to the highest bidder based on purely market forces and ending up with a narrow pool of investors re-circulating capital amongst themselves. Case in point, 80% of the trade volume in the NSE is controlled by like what, 500 people in an economy of 30 million?!!! Where is the trickle down effect?
I completely agree with CT, the selling of public assets in a weak domestic economy must be subsidized to achieve the broadest LOCAL private ownership. Like he mentioned, this is not restricting foreign ownership, it is prioritizing local one. Domestic capital begats foreign capital not the reverse.......

Sijui said...

BTW, I think it is extremely patronizing to assume that wananchi want GK to be the custodian of their shared assets hence going after the best and highest price. Wananchi want to own Safaricom themselves, they don't need a Government nanny to supervise their collective interest and control investment decisions. Hence the entire purpose of offloading all state owned enterprises and enabling a large private investor class. Emphasis again, large investor class.

Anonymous said...

Free markets quickly become irrelevant if you have only 10 people participating.

Anonymous said...

cold tusker they jus don get it man.....the goverment insulted kenyans by this ..safcom is kenyan bult and kenyans have toiled to make this com what it is today....they shld dip their fingers into honey first then everyone else can get it from secondary market as a matter of fact we shld even block tanzaniana and ugandans from these leave alone other foreigners...aint any thing bad if kenyans make money from foreigners reversed roles here....

Anonymous said...

Well it is a lot of BUll to say that selling safraicom to foreigners will expose kenyan compnaies to international standards.. Like those of Enron and Anderson in states!! dOES NOT THE kENYAN AUDITING AND ACCOUNTING STANDARD CONFORM TO THE INTERNATIONALLY RECOGNIZED STANDARDS? If somebody really want sto invest in Kenya let them start form scratch..BUt Safaricom has been built in Kenya by Kenyans to be a successful company and now we want to sell another chunk of it to foreigners.. Let us be serious and look at it in the long run?
We sell now, get a few chums and then repartaite profits for the rest of our lives. Is this what you call investment?

Anonymous said...

Iam a busines person and those who are stuck in text book economics of free market should ask why america.. the herald and evangelist of free market subsidizes its cotton farmers to the detriment of poor malians? Please get a life and stop this nonense of economic colonialism in the name of free marketism!!
I could rant on but if kenyans want to sell the family jewels to their maters in London.( i mean kibaki Governement) let it be!! i will be ashamed of having been borne in a land so full of hope and promise yet stifled by text book economics!!

coldtusker said...

Talking of subsidies, it is lamentable that the huge subsidies provided to US sugar & cotton (among other crops) helps depress world prices for these commodities thus fueling poverty in 3rd world nations.

The Europeans & Japanese are no better but "hide" their subsidies better!

Joshua said...

Love this article. Is it possible we can touch base sometime? You can get in touch with me by hitting editor at africanpath.com Thank you.

Anonymous said...

Well i have not seen any new post BUt maybe just to sober the text book free marketeers.. wake up to the new colonialism in the name of trade.
Why didi americans cry foul of DUbai ports buying theri ports?
Why did they BLock the chinese CNOOC from taking over some Oil company?
SO let us learn to differentiate true Investors form the Hot money profiteers who will run away at the sniff of any small thing happening in western Sahara. To most westerners , africa is one big country. Soem have no clue that it has 53 free nations with histories and economic advances so different form each other. I happen to do business in South Africa, and here people have been so colonised that they think of Kenya as in the middle of war, as all they hear about is trouble.What sells or is shown in news. SO if people really want to invest in Kenya , i do not mind greenfield investements.BUt buying off KEnyan firms on stock exchange is not investment. Its repratiation of profits. When i invest in SOuth African firms, My interest is to make as much money and take it back to Kenya. THis is in spite of the fact that there is a lot of income inequality here.SO let us sober up and do the right thing.Iam ready to own a chunk of safaricom. Vodacom already owns 40% why should we cede more again?

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