IPO Train: full on board

It’s now the fourth official day of the Safaricom IPO, with some banks and brokers working over 7 days processing applications. And, over the weekend, many of the negatives of the IPO turned into positives;

Politics align: The IPO was launched last Friday by President Mwai Kibaki, who placed a personal application for 1 million shares, worth 5 million shillings ((0.01% of the shares on offer) . Since then the ODM side have also changed tune of the IPO matter, as they realized that as leaders they have to guide their people – and one of the ways to do so is to enlighten them on opportunities of wealth building and methods of advancement beyond agricultural and real estate productivity. Why tell people not to buy shares, when other communities buy the shares? What do you want your people to do? In any case the public holds minority stakes in most NSE companies with over half the shareholding hidden behind other companies whose shareholders are not well known.

Competitive sisters: Kengen was a watershed IPO but that was 2 years ago. The last massive regional IPO was Stanbic Uganda – how do they compare?

Company; Stanbic : Safaricom
Target; (Ushs 70 billion) USS$ 38 million: (Kshs. 50 billion) US$ 770 million
Beneficiaries; Standard Bank (SA) & Government of Uganda ; Government of Kenya only
Shares on offer; 1 billion shares : 10 billion shares
Share price; (Kshs. 3) $0.04 : (Kshs. 5) $0.08
Oversubscription 3 X : (2X is a conservative estimate)
Applications: 37,000 ; (1 million expected)

Animal Metaphors: We now have CNBC Africa which has been live for about a month and it’s a great channel to watch especially late at night, when they are covering Asia or American markets. Last week, they were discussing the US banking crisis and one analyst used the Sherlock Holmes tale of the dog that did not bark in the night to reflect on the silence of Japanese banks that were heavy investors in US mortgage securities but have not declared any losses.

The animal metaphor with Safaricom - is the elephant in the room which everyone is ignoring and that is Vodafone (UK): Did they want the IPO? I doubt it – they are not making money from the IPO, and will go from having a cozy boardroom, to having a million shareholders (estimate) demanding phones and umbrella’s at AGM’s.

- They are reluctant partners in this who for the last three years (and long before Mobitelea became a Matatu name) they had tried to buy 9% or 11% of Safaricom from the Government of Kenya, for a figure far less than the Government will raise from the public. Vodafone will remain the largest shareholder with 40% (or 35%) to GoK’s 35% , and retain veto power over business plans, budget, and CEO & FC appointments. But most companies listed on the NSE have parent companies who find it prudent to retain at least 50% of the company’s ownership to control the strategic and management direction of a company – and could they be buying any floating shares out there after listing? They can own up to 60% of Safaricom.
- It has exposed the embarrassing practices that gave rise to Mobitelea

Will stockbrokers’ change?: The only smudge so far has been the past performance of stockbrokers. It is sad that the lines outside Nation Center (of Nyaga Stockbroker clients) is as long as that any broker/banker I have seen this week. Stockbrokers have put out their best clothes, advertised and got new staff to woo investors for the 1 billion plus shillings ($15 million) commissions from the IPO - but what happens after? Will they revert to their dark old ways of insider trading, and secret share dealing? An ominous story from the Nation goes that one of the most interesting but unconfirmed anecdotes at the bourse is that Nyaga Securities managing director Patrick Gakiavi actually attended (as a director) the NSE meeting that decided to pump Kshs. 100 million into his operation. - and that joins the NSE urban legend archive like the one of the CEO who was able to cash out his significant stake on the last day of Uchumi share trading

Modernization to eliminate rogue brokers: The central deposit settlement corporation (CDSC) is seeking an SMS solution (mobile phone messaging) to alert investors on their account share trades (theirs/by rogue brokers) and also respond to client requests. (Deadline is April 9) The laws have already been amended to allow them to collect 30 shillings from each Safaricom applicant for postage and this will probably continue for any statements thereafter – as investors will be eased into the cheaper option of SMS (maybe at 5 or 10 shillings per message)

Beyond Safaricom: Hisanet Africa recommend that investors look at some other shares of interest amidst the IPO: these include NIC Bank, Kengen, Barclays (who are now expanding into Rwanda), Access Kenya, and East African Cables.