Tuesday, December 04, 2007

Postpone Safaricom IPO?

Today's debate on the KISS 100 morning show was whether the Safaricom IPO should be postponed to next year.

No dates have been announced but it was (and still is) widely expected to kick off on December 10.

Those in favor of a delay rightly argue that most Kenyans struggle from December to February with holiday bills (extra food, travel, gifts) and school expenses (in addition to January fees, there are new uniform and book costs as well) and their little savings will not be available even for this much anticipated IPO

They also argue that the December 27 election will be a distraction to investors who will be out of Nairobi.

Those in favor of the IPO taking place in December that, the fewer buyers the better, since it will be over-subscribed anyway and this will just give investors a slightly better allocation. They also argue that they have saved for this and should be rewarded for their efforts at being prepared for the IPO.

Readiness factors

- The market is ready, and no marketing will be necessary for this IPO. Investors are ready to buy now, then deal with what they bought after.

- Timetable will be tight, but other countries are able to do it. Giant Indian bank ICICI's June '07 IPO ran for only four days and was over-subscribed on the first day.

- Stockbrokers say they are not, and have asked that it be delayed till next year, but they'll just pay their staff extra to work overtime during the holidays (and hire temps/interns to plug the gaps).

- Banks have abundant liquidity and will have loan packages towards the IPO to lend out the day after any announcement is made

- A local financial firm CCS Financial solutions (not to be confused with CFC Financial services) has come up with a financing product (in conjunction with ABC Bank) that will also deal with the inevitable refund cheques. (Read more at Nairobist)

- A correction: NSE Chairman Jimnah Mbaru is not contesting for the Starehe seat in the upcoming elections.

verdict: As with Kenya Re, I advise readers to by pass IPO's - but what are your views, to go ahead or not?

Turbulent 2008
- Could liquidity be drying up in the world credit markets?
- Is there any fundamentals behind the high price of oil, or is it only the fear factor?

14 comments:

Riba Capital said...

Banks: I support those who think the IPO should be next year. But my reasons are to restore back investor confidence and overturn possible capital flight over the election period and also to restore confidence in the market since as we delve deeper into smear campaign mode as is already happenign we might injure our reputation and scare away investors in the stock market atleast in the shortrun.
It would also be a good idea to first avoid major foreign currency inflows untill the shilling stabilizes and cools down after the Telkom and Equity deals.
But all purposes, we still need this IPO to have a scheduled timetable soon so that people can make appropriate plans.

don said...

Reading it is priced at Ksh 5. I have seriouse doughts that will will not cause a major liquidy problem.

In my opinion if the IPO is offered this year it will show imaturity from a financial services perspective. I hope not.

MainaT said...

I think the excuse that guys won't have money doesn't true because this IPO has been flagged for like the whole of this yr. If know you wanted to partcipate, you just set aside the cash. If not, banks like ABC, Transnational are offering some innovative loan products for the IPO.

This IPO could actually help to reduce our inflation by sucking some of he liquidity floating in the economy.

Taking it into next yr means GoK may have to come into the market to borrow.

Riba-I think the foreign inflows are already here

Maishinski said...
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Maishinski said...
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Maishinski said...

Safaricom IPO - what a mess! (Opinion):

Ati 5 bob with minimum 1000 shares? Ridiculous! Is there political pressure or are the transaction advisors a bunch of morons?!!!

According to BdAfrica, we're talking of an additional 1.5 million shareholders in the Safcom Shareholder register.

POST-IPO COSTS:
Has anyone thought of the massive costs of organizing AGMs, Priniting Annual reports, sending out dividend cheques etc? At a macro level, Infrastructural and resource demands for processing a massive number of small value share allocations needs to be thought about!

INVESTOR LOSSES:
Serious investors lose out if all they get is a paltry 1000 shares worth 5000 bob. Even if there is a massive bull run resulting un 500% increase - you only get 25,000 which is nothing to write home about - considering the hype!

CONFLICT OF INTEREST:
Perhaps there is a *conflict of interest* since transaction advisors, being brokers also, know that they will gain more commissions in a volatile secondary market if the number of speculative shareholders is very high! The buy-hold investor is not a stock broker's friend!

REFUND TRANSACTIONS:
Then the number of refund transactions in case of a massive oversubscription will be *mind boggling* - and an unnecessary waste of resources and funds (due to expenses incurred)!

OBJECTIVE ALLOCATION CRITERIA:
IPOs should only be targeted at serious investors - not speculators! The allocation structure should aim to minimize the chances of massive post-IPO refunds which are detrimental to the economy (idle capital).

We need sanity and stability in the secondary market. Considering the high value of the company and the need to minimize refunds, the shares should cost approx 50 bob each and the minimum *value* of shares bought during the IPO should be 100k-200k.

INVESTMENT GROUPS:
This will force jua kali investors to form organized investment groups and minimize risk of instability at NSE due to excessive speculation typically associated with such investors.

HIGH NET WORTH INDIVIDUALS:
We also need to consider "High Net Worth" investors as separate from corporate investors. E.g. our MPs and people like Chris Kirubi.

Minimum allotment for such individuals should be 1-2 Million shillings per shareholder.

ETHICS
The transaction advisors are being paid to do a job - let them do it properly - without turning the IPO into a future commissions cash cow for their own benefit!

Anonymous said...

True dat!

inspectordanger said...

Maishinski, you missed the point totally. 1.5 million new investors doesn't actually mean all the 1.5 million will apply. And pricing at shs 50 for a minimum of 100 k!!! That is ridiculous, because how many Kenyans can raise (or have collateral to raise) 5 million. This will just continue widening the gap between the rich and the poor.

My opinion on the IPO, the price should be as low as shs 5 but the minimum should be increased to 5,000 shares. That way at lease average Kenyans would be able to participate. On the other hand, I think the IPO should go ahead. Many investors I know have been keeping their funds since September expecting the IPO to take off in October. It will be unfair to postpone the IPO to next year. Besides, the NSE is bearish due to these funds held in anticipation of the the Safaricome IPO. After the IPO the market will be bullish once more. We need the IPO.

pesa tu said...

I would like the IPO to proceed.We should also allocate a portion of it to the foreigners.This should help keep our markets in the foreign investors radarscreens probably via an ADR.

Here are my thoughts on the safaricom IPO

High oil prices are helped by speculation+demand but a recession or slow down will affect demand negatively.No prizes for guessing where oil prices will go then

Maishinski said...

Hi Inspectordanger,

I meant minimum 2000 shares at 50bob pershare = 100,000bob or 4000 shares to make 200k bob.

If the IPO targets the masses everyone will lose.

First - there is a risk of a massive selloff in the first weeks of trading with everyone targeting to make a quick buck. If supply outstrips demand then we may even have the share dropping down to 1bob. Resulting in panic selloffs. Keep in mind - no one reads the prospectus. Fundamentals rarely come into play at NSE.

Secondly, any gains made by investors will be insignificant - due to low volumes. No one will get rich from the IPO if it targets the masses - hence the argument about poverty alleviation doesn't wash. The only real outcome will be a massive waste of time and resources for everyone!

ONLY STOCK BROKERS STAND TO GAIN!!

They don't care about ordinary wananchi - they simply understand the game:

Speculation = Max Commissions for brokers

Jua Kali investor = Max Commissions for brokers

Whatever happens - the brokers win!!

mugi said...

A 5shs pricing is crazy!. It should be priced at 10shs or 20shs. Safaricom should be delayed to Apr/May08 so that politics etc are out of the equation, the market is on a high...

bankelele said...

Riba: Fin Minister now seems to be in a hurry, but it seems he left it too late; still I expect it shoudl perform much better than the last December ofer of Mumias which was considered (and proved) to be over-priced

don: there's been some correction and the 5/= may not be genuine

MainaT: the money will be there. however the money raised, will mostly be refunded unless there are billions of shares (as shoen in B-Daily) and the process will have destabbilised a lot of otehr plans, travel, investment decisions of wananchi

Maishinski: 5/= may not be true, but they'll have to create a few billion shares to satify demand with a reasonable allocation. but you don't want a new company to take up 1/2 the NSE cap!
POST-IPO COSTS: inevitable, a million shareholders are realistic. they should hold the 1st AGM at remote Dadaab (the most profitable safaricom center)

Mugi & inspectordanger: that price and minimum investment will have to be higher

pesa tu: this is one opportunity to place Kenya on the international investment map. It should not be a political carrot

Maishinski said...

Banks - Sorry, this time I don't agree with you...

Fast forward to 2009 - onwards: Competition in the telecoms sector will intensify. Safaricom's competitive dominance will be challenged by new players, and price wars cannot be ruled out as competitors adapt/imitate.

Margins will narrow - hence it will be imperative to minimize overheads in order to issue healthy dividends.

An allocation criteria that targets the speculative masses - is RISKY for serious by-hold investors.

Worse still - absolutely NO ONE EXCEPT STOCK BROKERS BENEFITS from such a criteria! It is like gambling - only the house wins!

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