Wednesday, June 4, 2008

A Piece of Safaricom

After the excitement and flurry of activity surrounding the largest IPO south of Sahara, Safaricom must surely now be the largest company too, with over 600,000 new shareholders being brought on board. It seems though, that the whole exercise was more of a fund raising effort by the government than a real investment opportunity for the multitudes even as Finance Minister Kimunya pretends that the oversubscription was unexpected. The anticipated massive turn-out may actually have informed the decision to split 25% of the government’s holding into tiny five-shilling shares for ease of drawing in money from the public. And true to the conspirators’ expectations, the pride of “owning a part of the most profitable company in East and Central Africa” was just too overwhelming.

Now that the “investor” hype has calmed down and allotments made, many of the subscribers must be sobering out of the stupor of pride to find that their investment goals have been diluted to such minuscule levels as to make tragicomedy of the whole exercise. Having attained his Ksh 50billion with ease, Minister Kimunya can now quietly slip away from the scene to leave Safaricom with an upcoming logistical nightmare in their hands, the NSE with what promises to be a highly volatile trading environment and thousands of proud, albeit anxious, shareholders.

Investment analysts will no doubt come out with an array of metrics to show that Safaricom is a worthwhile investment in the long run, assuming that Michael Joseph has a worthy succession plan in place incase he opts to leave, and hoping that the politics of several hundred shareholders does not over-run the company. But for the many unsophisticated investors, the important indicator will of course be how much money they will be making in the short-term speculative trading or the long-term return on their investment.

For many of these not-so-savvy speculators who borrowed loans from banks to finance their subscriptions, the coming few months will obviously be unpleasant. Repayments of the loans with interest will be due even as they trade their fraction allotments at the stock exchange which is expected to open trade at about Ksh 10 to Ksh 15 and then stabilize at around Ksh 7. A little arithmetic with these figures clearly suggests that no one will be “making a killing” in the short term apart from the banks and stock-brokers through interests and commissions. For instance, trading off the minimum allotment of 420 shares may earn one just about Ksh 4200. This is for the many that queued to pay Ksh 10000 for the minimum 2000 shares but were allotted only 420.

On the basis of this year’s company performance, such an investor could in one year earn the princely sum of Ksh 21 as dividends, a figure which can be expressed in various ways through analytical metrics to spruce it up as a smart return on investment. But in whichever way the returns are expressed, it is possible that the company’s bottom line and corporate image could appear rosy even as the benefits accruing to the 600000 shareholders stay incongruent. How the ingenious management of Safaricom intends to disburse such dividend sums of a few hundred shillings to thousands of shareholders remains to be seen (M-pesa?). And we may just witness the first AGM to be conducted by sms!

Unlike the typical public offers for shares by companies which are designed to raise funds for investment and growth, this was not the case for the safaricom IPO whose entire proceeds were taken up by government to finance unrelated programs. This brings to the fore the dubious value that the shareholders will be bringing to the business other than increase expenses which now have to cover the logistics of circulating company reports, managing AGMs and so on. Already there is talk by some people about “ganging up” and mobilizing shareholders to ferret out the ghosts of Mobitelea, an undertaking that is bound to be exciting, expensive and probably unproductive.

The enticement to jump onto the Safaricom IPO must have been a clever dupe to raise funds quickly for government, for whatever reason, under the guise of enabling the common man to invest. The magnitude of the dupe will become clearer in the coming year or two when the very same commoners will have been bought out by the “big boys” of the game. It is a shame that our own government should conspire to play on the pride of its own people and their desire to earn an honest shilling.


Stephen said...

I was amused by this piece but I have to agree to a great extent. At the end of the day, buying stocks should is investing and never a "pride", "emotion", "humanitarian" or "mob psyche" issue.

Wanjiku Unlimited said...

Hi Steve. Long time.

A lot of Kenyans especially those who took loans are really disappointed. But from the very many questions being asked now it seems Kenyans did not quite understand the details of the share business before they bought.

KK said...

Mhhhhmmmm! Now you tell me.