Safaricom float beats all records: when president Mwai Kibaki rang the stock exchange bell in the second week of June to mark the beginning of Safaricom's trading, he was as optimistic as the day he launched the IPO. Dennis Onyango reports.

Just a month after the end of its record-breaking Initial Public Offering (IPO), Safaricom, the Kenya based mobile telephone company began trading its shares at the Nairobi Stock Exchange (NSE). But if some of those who bought the shares expected to make a killing, they were in for a disappointment.

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Short term investors who bought into Safaricom at Ksh5 a share (equivalent to just over 8.1 US cents) believed that once trading started, they would be able to sell at double the price - at the very least. However, Safaricom shares, on the first day of trading, changed hands for as little as 11.20 US cents a share, 45% above the IPO price, before closing at 11.92 US cents. Trading costs would have wiped out any profit a small shareholder would have made on the issue.

Nevertheless, it was a huge success for a company that only started life in 1997 as a department, later a subsidiary, of Telkom Kenya, the country's state-owned fixed-line telephone operator. Safaricom's IPO in March was a huge event, not only in Kenya but globally. The company offered l0bn shares, with foreigners paying a 10% premium. The Safaricom IPO raised a staggering $839m - making it the largest ever in sub-Saharan Africa.

Privatisation policies vindicated

The IPO produced 860,000 new investors. It also saw the government dispose of a 25% stake in Safaricom, generally recognised as East Africa's most profitable company and the largest mobile phone operator. Locals bought the shares at 8.1 US cents while foreigners paid a premium at 8.9 US cents. The IPO reduced the government's stake in the company from 60% to 35%. On its first day of trading on the NSE, 416m shares changed hands ensuring the price stayed at an average of 11.95 US cents a share.

The bullish share price was good news for investors, but hopes of huge instant profits were dashed because the IPO had been massively over-subscribed.

Small investors who bid for the 2,000 minimum shares on offer were allocated just 420 shares. After the first day of trading, the market value of Safaricom had increased by more than $1.15bn and the company's total capitalisation rose to $3.24bn.

President Kibaki claimed the IPO's success had vindicated his privatisation policy. "The response by Kenyan and international investors was overwhelming, making this IPO the most attractive offering in our history and possibly in the rest of Africa," Kibaki said.

The president added that the IPO would greatly increase the stock market's capitalisation and that the Safaricom IPO had proved the country was awash with resources that could be tapped to finance infrastructure development through long-term bonds.

The IPO ran for 26 days, closing on 23 April. What had been billed as Africa's largest ever IPO lived up to its promise when the rush for Safaricom shares attracted $3.09bn from both local and foreign investors. The government has said that the proceeds from the shares they sold through the IPO will be used to finance its development programmes while Safaricom promised the cash it raised would be used to improve its communications infrastructure.

The sale of Safaricom shares, particularly to international investors, was expected to further raise Kenya's profile as a favourable international investment destination and pave the way for the flotation of a Eurobond infrastructure issue.

Kibaki, launching the IPO, described Safaricom as "a good example of the huge investment opportunities that exist in our country". The only negative news was buyers being allocated far fewer shares than they applied for.

International investors courted

A high-powered Kenyan delegation, comprising of Treasury officials and members of the country's Privatisation Commission, had accompanied senior Safaricom management on a series of international road shows, meeting prospective investors in London and Johannesburg to promote the issue.

Preliminary figures showed that local investors oversubscribed the share offer by close to 254% meaning they will be receiving Kshl41bn in refunds. Foreign investors, according to the government, who paid a 10% premium for the issue, committed $1.23bn.

The government immediately declared that the sum realised made Safaricom sub-Saharan Africa's biggest IPO with Kenya's investment secretary Esther Koimett saying in a statement: "Upon completion, the Safaricom IPO will be the largest ever sub-Saharan IPO, surpassing those of Sanlam and Telkom SA [both of South Africa]. On a pan-African basis it will be the third largest IPO after those of Maroc Telecom and Telecom Egypt."

Although the IPO was meant to be a regional affair, open to buyers from each of the three East African states, Tanzanians did not participate because the Bank of Tanzania refused to grant them permission. Bank of Tanzania governor Benno Ndulu explained that it would be difficult to oversee such an undertaking given the current legislation.

"Please be advised that the sought dispensation would be difficult to administer given the existing limitations on convertibility of our East African currencies," he said. The central bank said that in any case, piecemeal waivers would not address the fundamental issues of capital-account liberalisation, but rather undermine transparency and market development in general. Tanzania said it was keen to work with all stakeholders in revising the policy framework governing such transactions, "thus promoting integration of the East African markets in a sustainable manner". Ndulu argued that Safaricom did not make any commitment to cross list at the Dar es Salaam Stock Exchange (DSE), denying Tanzania the opportunity to further develop its own national bourse.

Nevertheless, in launching the IPO, Kibaki had invited the region to participate in the exercise, citing the invitation as part of Kenya's commitment to regional integration. "We believe in the benefits of regional economic integration. For this reason, and to foster the integration of our capital markets, we amended the Capital Markets Act last year to recognise citizens of member countries of the East African Community as citizens of Kenya for purposes of investing in our stock exchange," Kibaki said. "We, therefore, welcome our brothers and sisters in these countries to invest in the Safaricom IPO," he added.

Other regional states, particularly Uganda and Rwanda, participated in the IPO. Local and foreign investors were allocated 65% and 35% respectively of the 10bn shares on offer, but there is a government stipulated provision to claw back up to 15% of the 3.5bn shares offered to international investors if locals oversubscribe their offer by more than 200%, which they did.

The electronic crediting of accounts and dispatch of share certificates commenced on 4 June.

Some analysts have concluded that with only a third of all Kenyans having cellphones, Safaricom's strategy of of widening mobilephone ownership will receive a substantial boost having built increased loyalty to the brand with its new shareholders

With the foreign investor share price set at Ksh5.50, the amount received from them will be $178m, while the total from the domestic pool will be $648m making a total of $827m. That is $16m over the minimum expected in the prospectus but $275m more than initially forecast in the 2007/8 national budget.

Following the IPO, Kenya's Treasury emphasised that neither the government nor Vodafone Kenya would be permitted to sell any further shares for a period of at least six months following the IPO.

"The IPO has far exceeded the goals laid out at the launch of this process; namely by deepening Kenya's capital markets, maximising revenues for the Treasury and increasing international investor interest in the Nairobi Stock Exchange," a draft report by the Privatisation Commission at the Treasury stated.