6,000 Ugandans want Safaricom
The Kenyan government offered its 25% stake in Safaricom through an Initial Public Offer (IPO) from March 28 to April 23. It is expected to announce allocation results this Thursday (May 29) before the company is listed on June 9.
The Kenyan government offered its 25% stake in Safaricom through an Initial Public Offer (IPO) from March 28 to April 23. It is expected to announce allocation results this Thursday (May 29) before the company is listed on June 9. Sylvia Juuko talked to Njoroge Ng'ang'a, the managing director of Dyer & Blair Uganda, about the latest developments
QUESTION: What is the update regarding the subscription levels for the Safaricom IPO?
Nothing official, but indications are that there will be an overall over-subscription of 300%, which represents a 400% subscription.
Do you have any idea how many Ugandan retail investors applied for Safaricom shares?
About 6,000 applied. This is encouraging since Safaricom is not a locally-known company. It means that for local companies, future response will be good. But investors also have to manage expectations and know that no two IPOs are the same.
What allocations are the retail investors likely to receive?
If this holds, then we are looking at about a 25% allocation. If this happens, it may be below investor expectations. True but it will be 25% of a good stock, so one can expect the value of what they get to increase because of strong demand.
In the event of not getting total allotment of shares, will you facilitate participation in the secondary market?
Yes. Since the investor has already made up their mind to invest, a great strategy would be to invest the refund into Safaricom, depending on the early trading price. They could also invest in another stock on the Nairobi Stock Exchange (NSE) since they already have a Central Depository System (CDS) account, just like Kenyans have invested on the Uganda Securities Exchange (USE). Locally, there is the New Vision rights issue coming up and other counters on the USE that have excellent future potential. Dyer & Blair will therefore facilitate secondary trading after the announcement and when trading begins on June 9.
How will the refund process be executed and what is the foreign exchange risk?
The receiving bank and the consortium will carry out the refund according to the instructions given on the applications. Some applicants wanted the funds sent directly to their banks, which will involve an element of foreign exchange risk. But we had suggested to our clients to have the refund put on their CDS accounts to allow for flexibility regarding other investments or seeking an appropriate time when the exchange rate is favourable. There will probably be a rush for Uganda shillings, which may strengthen the local currency and weaken the Kenyan shilling. We hope investors consider their options first.
Banks lent out money for the purchase of Safaricom shares without collateral. What would be the impact on liquidity with funds tied in the process?
The collateral is the Safaricom share itself, so there was collateral. But in some cases, no additional collateral was provided. Financial institutions will have worked out what exposure they are comfortable with and lent accordingly. This is exciting because it introduces a new product on the market and we hope in future, banks can continue to use stocks as collateral within prudent parameters.
What lessons do we learn from the Safaricom IPO?
It appears there is large untapped investment capital and we hope to work with all capital market participants to find a home for these funds. These funds go to companies that grow, increase and improve their services and create employment, while providing taxes for public services and infrastructure development.
QUESTION: What is the update regarding the subscription levels for the Safaricom IPO?
Nothing official, but indications are that there will be an overall over-subscription of 300%, which represents a 400% subscription.
Do you have any idea how many Ugandan retail investors applied for Safaricom shares?
About 6,000 applied. This is encouraging since Safaricom is not a locally-known company. It means that for local companies, future response will be good. But investors also have to manage expectations and know that no two IPOs are the same.
What allocations are the retail investors likely to receive?
If this holds, then we are looking at about a 25% allocation. If this happens, it may be below investor expectations. True but it will be 25% of a good stock, so one can expect the value of what they get to increase because of strong demand.
In the event of not getting total allotment of shares, will you facilitate participation in the secondary market?
Yes. Since the investor has already made up their mind to invest, a great strategy would be to invest the refund into Safaricom, depending on the early trading price. They could also invest in another stock on the Nairobi Stock Exchange (NSE) since they already have a Central Depository System (CDS) account, just like Kenyans have invested on the Uganda Securities Exchange (USE). Locally, there is the New Vision rights issue coming up and other counters on the USE that have excellent future potential. Dyer & Blair will therefore facilitate secondary trading after the announcement and when trading begins on June 9.
How will the refund process be executed and what is the foreign exchange risk?
The receiving bank and the consortium will carry out the refund according to the instructions given on the applications. Some applicants wanted the funds sent directly to their banks, which will involve an element of foreign exchange risk. But we had suggested to our clients to have the refund put on their CDS accounts to allow for flexibility regarding other investments or seeking an appropriate time when the exchange rate is favourable. There will probably be a rush for Uganda shillings, which may strengthen the local currency and weaken the Kenyan shilling. We hope investors consider their options first.
Banks lent out money for the purchase of Safaricom shares without collateral. What would be the impact on liquidity with funds tied in the process?
The collateral is the Safaricom share itself, so there was collateral. But in some cases, no additional collateral was provided. Financial institutions will have worked out what exposure they are comfortable with and lent accordingly. This is exciting because it introduces a new product on the market and we hope in future, banks can continue to use stocks as collateral within prudent parameters.
What lessons do we learn from the Safaricom IPO?
It appears there is large untapped investment capital and we hope to work with all capital market participants to find a home for these funds. These funds go to companies that grow, increase and improve their services and create employment, while providing taxes for public services and infrastructure development.