Safaricom share allocation letdown
Jun 07, 2008
LAST week, Kenyan telecommunications company Safaricom, announced the allocation results of the initial public offering (IPO) of its shares. The Kenya government in April put 10 billion or a quarter of the telecom giant up for sale, ahead of a listing on the Nairobi Exchange on Monday.
By Paul Busharizi
LAST week, Kenyan telecommunications company Safaricom, announced the allocation results of the initial public offering (IPO) of its shares. The Kenya government in April put 10 billion or a quarter of the telecom giant up for sale, ahead of a listing on the Nairobi Exchange on Monday.
As it turns out, the pent-up demand for the shares, remember the share offer was anticipated for as early as September last year, resulted in the shares being oversubscribed four times over.
As a result, the East African Community investors – retail and corporate, can expect to get about a fifth of the shares they applied for.
In previous IPOs, by using many accounts and getting the minimum allowed on several accounts, many investors found a way around the low allocations that came with over-subscription.
This time around, the Kenya government in an attempt to discourage the use of multiple accounts used a pro-rata system, whose net result was to have the biblical effect of ensuring that to those who asked for more, more was given.
So understandably, potential investors have been underwhelmed by the allocation results and many are at a loss for what to do with their refunds.
The Kenyan investors, many of whom borrowed to buy the shares, have the headache that not only did they not get all the shares they wanted, but they also will have no access to the shares they have, till they have paid off the debt. And should they choose to sell, the proceeds from the sale will go towards redeeming the loan. In Uganda, investors have to now grapple with exchange risk – the risk of loss from dealing across currencies.
At the time of application, the forex bureaux were selling the Kenya shilling for as much as 28 shillings and now as the refunds return, you will be lucky to get 25.50 for your Kenyan shilling – as much as 2.50 loss on every Kenyan shilling converted.
The world’s richest man Warren Buffet, considered by many as the gold standard of investment world, has two rules of investing; “Rule number 1 do not lose money, rule number 2 do not forget rule number 1.†To suffer the exchange loss out of frustration or out of some childish need to spite the Kenyans, goes against rule 1 especially as the situation is not an irredeemable one.
As up to 6,000 Ugandans now have Central Depository System (CDS) accounts they can now invest on the Nairobi Stock Exchange with as little effort as an email to their local broker. That being said, there are several options Ugandans can use to minimise the loss to their hard-earned shilling.
They can wait for their CDS accounts to be credited and buy more Safaricom shares when the price settles to a more reasonable figure than will be experienced in the first days of trading.
All brokers are touting the share as a good long-term security, meaning they are confident that despite the new competition coming into Kenya’s telecom market, Safaricom’s management can fend off all newcomers, keep the company profitable and continue to grow shareholder value.
It is expected that with the return of refunds, share prices will jump on the NSE – there has been a slump in activity as some people liquidated their portfolios to buy into Safaricom, and this money is expected to jump back with a vengeance.
Over the short-term, there will be a dearth of bargains on other counters on the NSE. One other option is to park your money on the CDS account and wait for another Kenyan IPO.
Or better still, wait for another Kenyan IPO to depress share prices again – maybe even Safaricom, to a point where they are selling at a bargain again and then jump in with both feet.
Obviously, you are best advised to talk to your broker or investment advisor about the best way forward but you need not lose money on the currency conversion if you can make money in Kenya.
pbusharizi@newvision.co.ug
LAST week, Kenyan telecommunications company Safaricom, announced the allocation results of the initial public offering (IPO) of its shares. The Kenya government in April put 10 billion or a quarter of the telecom giant up for sale, ahead of a listing on the Nairobi Exchange on Monday.
As it turns out, the pent-up demand for the shares, remember the share offer was anticipated for as early as September last year, resulted in the shares being oversubscribed four times over.
As a result, the East African Community investors – retail and corporate, can expect to get about a fifth of the shares they applied for.
In previous IPOs, by using many accounts and getting the minimum allowed on several accounts, many investors found a way around the low allocations that came with over-subscription.
This time around, the Kenya government in an attempt to discourage the use of multiple accounts used a pro-rata system, whose net result was to have the biblical effect of ensuring that to those who asked for more, more was given.
So understandably, potential investors have been underwhelmed by the allocation results and many are at a loss for what to do with their refunds.
The Kenyan investors, many of whom borrowed to buy the shares, have the headache that not only did they not get all the shares they wanted, but they also will have no access to the shares they have, till they have paid off the debt. And should they choose to sell, the proceeds from the sale will go towards redeeming the loan. In Uganda, investors have to now grapple with exchange risk – the risk of loss from dealing across currencies.
At the time of application, the forex bureaux were selling the Kenya shilling for as much as 28 shillings and now as the refunds return, you will be lucky to get 25.50 for your Kenyan shilling – as much as 2.50 loss on every Kenyan shilling converted.
The world’s richest man Warren Buffet, considered by many as the gold standard of investment world, has two rules of investing; “Rule number 1 do not lose money, rule number 2 do not forget rule number 1.†To suffer the exchange loss out of frustration or out of some childish need to spite the Kenyans, goes against rule 1 especially as the situation is not an irredeemable one.
As up to 6,000 Ugandans now have Central Depository System (CDS) accounts they can now invest on the Nairobi Stock Exchange with as little effort as an email to their local broker. That being said, there are several options Ugandans can use to minimise the loss to their hard-earned shilling.
They can wait for their CDS accounts to be credited and buy more Safaricom shares when the price settles to a more reasonable figure than will be experienced in the first days of trading.
All brokers are touting the share as a good long-term security, meaning they are confident that despite the new competition coming into Kenya’s telecom market, Safaricom’s management can fend off all newcomers, keep the company profitable and continue to grow shareholder value.
It is expected that with the return of refunds, share prices will jump on the NSE – there has been a slump in activity as some people liquidated their portfolios to buy into Safaricom, and this money is expected to jump back with a vengeance.
Over the short-term, there will be a dearth of bargains on other counters on the NSE. One other option is to park your money on the CDS account and wait for another Kenyan IPO.
Or better still, wait for another Kenyan IPO to depress share prices again – maybe even Safaricom, to a point where they are selling at a bargain again and then jump in with both feet.
Obviously, you are best advised to talk to your broker or investment advisor about the best way forward but you need not lose money on the currency conversion if you can make money in Kenya.
pbusharizi@newvision.co.ug