Morgan Stanley (MS) & their local partner (Dyer & Blair) had sole rights to advertise and promote the SafCon OFS abroad. By bidding 5 cents, D&B became the Transaction Adviser (TA).
A conflict arose since the TA is also a stockbroker and placing agent. D&B advised that MS gets sole rights for foreign applicants. D&B then shares in the profits made by MS. So the 5 cents is elusive i.e. it cost Kenyans far more than 5 cents. it cost them billions!
MS could choose who they wanted to participate in the OFS. They could reject an application for any reason they deemed fit. They also could peek at the applications from other brokers thus allowing their clients (& themselves) to adjust the bids as needed.
Question: So what happened?
Answer: Well, MS picked applicants who were in their good books. This means THEIR clients who provide high-priced MS with business. Some of these applicants were 'connected' to the political establishment so while the ordinary Kenyan gets 30% of the application, MS+DB 'clients' could get 20%-35% unhindered!!!
MS could also buy for their own books meaning they reject valid applicants who offered more than 5.50 to leave the field clear for them.
Question: Why was 20-35% of a firm with 99.9% Kenyan subscribers & revenue being sold to foreigners who contribute little?
Answer: Well, it was a payback for political support. Coldtusker was NOT invited to participate! Many Kenyans would have willingly paid more than 5.50 ( including yours truly) for the 20-35% that was offered to the foreigners. It turns out there were applications/bids at 6.50 but 5.50 was chosen to benefit the so-called 'foreigners'. Therefore, at the MINIMUM, Kenyans lost (2bn shares x 1/-) KShs 2bn. The 1/- is what the real market would have paid above the 5.50 the GoK accepted.
If the allocation to foreigners was 35% then the loss could be KShs 3.5 bn.
Many Kenyans borrowed and had to pay upfront while the 'foreign' (in parentheses coz these foreigners were simply a front. There is NO scrutiny of they are!!!) applicants pay AFTER the allocation!
Equity was lending at 18% pa + 3% commitment fee.
10,000 shares@5 = 50,000. The issue closed on 23 April but refunds will be disbursed at the earliest on 10 Jun & clear 4-5 days later thus 60 days of interest on 50,000.
50,000 x 3% = 1,500
50,000 x 60/360 = 1,500 (Most banks use 360 days per year when charging interest)
allocation of 30% = 3,000 shares
Cost of 3,000 shares = 15,000 (for the shares) + 1,500 (Commitment Fee) + 1,500 (Interest) = 18,000
Cost per share = 18,000/3,000 = 6/-
The losses will run even higher than what I have shown above if the price of SafCon exceeds 6.50 per share - which is likely.
A pity but Kenyans continue getting screwed... royally screwed...
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