State could sell more of its Safaricom stake to spur public interest in stocks

Wednesday March 18 2020

At the opening of the seventh Building African Financial Markets (BAFM) seminar last week, Geoffrey Odundo, CEO of the Nairobi Securities Exchange (NSE), said they wanted to address the low level of listings at exchanges around Africa and that they had just returned from London, where the London Stock Exchange already had 17 initial public offerings (IPOs) this year.

Later, Deputy President William Ruto, in his remarks to officially open the seminar, challenged the NSE to grow the number of listed companies beyond the current 60. He said that the bourse should not wait for the government, which had already provided leading listings such as KenGen and Safaricom.

But he added that the government was looking to raise Sh100 billion ($1 billion) through an IPO of National Oil. The shares would be dual-listed in Nairobi and London and the funds raised would go to build a pipeline and infrastructure to evacuate oil from Turkana to the Kenyan Coast.

The need to increase the number of listed companies on African exchanges was a running theme through the two-day BAFM meeting of leaders from stock exchanges from 17 countries, which was billed as the biggest financial markets event in Africa. At one session, it was mentioned that of 26 corporations slated for privatisation, only the Kenya Wine Agencies has been completed.


Drawing companies to the stock exchange is not easy. Speaking later at the BAFM, Terry Adembesa of the NSE mentioned that the bourse’s managers do reach out to companies in high-performing sectors to list. They had a target of 19 new listings by 2019 but lamented that some companies wanted to delist.

And at another session, Paul Mwai, chairman of the Kenya Association of Stock Brokers & Investment Banks, lamented that Kenyans don’t invest much in company shares. He said pension funds buy mainly government bonds while individual Kenyans would rather speculate on land, and recently had turned to gambling almost Sh30 billion a year on sports betting.

He pointed out that the period between 2002 and 2008 represented the glory days of the Nairobi Stock Exchange, with three issues of KenGen, Kenya Re and Safaricom. Investors had turned out to buy these shares, with KenGen being 333 per cent oversubscribed, Kenya Re 334 per cent, while Safaricom's IPO had a 532 per cent oversubscription. There was also Mumias Sugar, which many investors probably want to forget. It had a 95 per cent subscription at Sh49.50 per share, but today trades at less than one shilling per share.

But he said the government had put a freeze on privatisations and there had been none in the past 10 years. While the NSE had introduced seven private issues in the past decade, it was the huge government issues that excited the markets and drew crowds of investors. He added that a huge government IPO was what was needed to revive the interest of ordinary Kenyans to buy shares.


It would be nice if another slice of Safaricom was floated to retail Kenyan investors. Safaricom has had a 485 per cent return for investors who have held on to the stock, but many missed out on the IPO and others sold their shares when the share price dipped in the months after listing to less than two shillings.

Last year Vodacom bought 35 per cent of Safaricom from Vodafone for $2.6 billion. Safaricom is worth Sh1.1 trillion today, and 10 per cent of that could get the government almost Sh110 billion, while still leaving it with 25 per cent. Safaricom paid Sh39 billion in dividend last year, with 35 per cent of that going to the government. And including that dividend, it paid a total of Sh84 billion to the government in fees and taxes and these sums will still flow to the government, even with a slightly reduced shareholding.

But it also reminded me of a Mindspeak session in 2016, where Treasury Cabinet Secretary Henry Rotich attributed the lack of privatisations since Safaricom to the current laws that are a hindrance, with too many safeguards and regulations, requiring many consultations. He cited sugar companies, leading hotels and four banks in which the government has stakes as the first in line for privatisation. But going by the public and political discussions on the sale of sugar companies, that is still far off.

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