Mixed fortunes for Safaricom investors five years after IPO

The Safaricom Customer Care Centre on Moi Avenue. Analysts remain bullish about the company’s prospects. FILE  NATION MEDIA GROUP

By Victor Juma

In Summary

• Long-term investors, State make billions from issue which exposed gaps in capital markets.

This weekend marks five years since Safaricom was listed at the Nairobi Securities Exchange after selling 10 billion shares to the public.

The event marked a watershed in Kenya’s capital markets and settled the argument whether there was the appetite and cash to support multi-billion-shilling calls.

Prompted by the government’s need to raise cash and give Kenyans bragging rights of owning a piece of the most profitable company in eastern Africa, the initial public offering (IPO) was historic for its sheer scale, the massive oversubscription and the revelation of Mobitelea, a shadowy investor in the company’s books.

To date, the faces behind Mobitelea, who have since sold their five per cent stake in the telco to London-based Vodafone, remains a mystery despite investigations by Parliament and UK’s Serious Fraud Office (SFO).

To investors, however, Safaricom’s IPO presents mixed fortunes and feelings. Along the way, some investors have made millions while others have lost a small fortune.

The company has had a remarkable performance and remains by far the most profitable business in the region, ring-fencing its fortunes by the proprietary money transfer service M-Pesa that was developed by Englishman Nick Hughes.

Economic outcomes of investing in the telco have largely been determined by the holding period, trading strategies, number of shares, and whether the shares were imprudently bought using bank loans.

An IPO of such a scale was also bound to magnify a number of problems in the capital markets and financial system, including outright fraud, profiteering by banks, and the mess that was the refunds and share registration processes.

The government came out ahead in the IPO, netting Sh51 billion for the 10 billion shares it sold to local and foreign investors who had placed in bids worth Sh231 billion or an oversubscription of 360 per cent.

The Treasury, which retains a 35 per cent stake in Safaricom, together with Vodafone (40 per cent) have earned billions of shillings in dividends, helped by their large share volumes and special status either as regulators or trading partners of the telco.

For retail investors, the company’s sterling performance has done little to cause excitement, with the majority earning dividends of less than Sh200 and whose cheques or M-Pesa credits can hardly be cashed economically.

Minority shareholders have over the years piled pressure on the company to buy back some of the floated shares in a move that would reduce supply and thereby drive up the stock’s price.

The board has, however, noted that Kenyan laws don’t allow share buybacks, adding that an alternative solution would be to get a strategic investor.

This has left small investors with the sole option of selling their shares at a higher price. This opportunity has, however, been absent for most of the past five years during which the stock traded at below the Sh5 IPO price, with the share flirting with the Sh2 mark for a while.

In the meantime the Telco has acquired more customers and diversified into the data business, helping it to maintain a strong performance that has finally fired up the stock