10 Years after Safaricom IPO, the NSE needs another giant

This week marks 10 years since the landmark Safaricom initial public offering (IPO). It was launched on March 28, 2008 by President Mwai Kibaki, who placed a personal application for one million shares, worth Sh5 million.

The Safaricom IPO came after the disputed 2007 election and it came at a time of peace and reconciliation. Still, there was some controversy about the IPO, with some opposition leaders charging that the government was selling off its best company. At the time of the IPO, Safaricom had 9.2 million subscribers and 700,000 M-Pesa users. There was the revelation about Mobitelea, and the large share split and dilution of shares to just five cents (Sh0.05) to accommodate as many shareholders as possible who would buy the shares at the IPO price of Sh5 per share.

The IPO came after the KenGen one that had created the culture of buying shares at an IPO and selling them off quickly as they would undoubtedly double after listing. For Safaricom, people queued on the street to open multiple accounts at different stockbrokers. Banks and cooperatives offered loans to finance the purchase of shares. The IPO drew in investors from the diaspora and shares were sold in Uganda and Rwanda, but the Bank of Tanzania banned purchases of Safaricom shares.

LONG-TERM INVESTORS REWARDED

Ultimately the demand was too great. Shareholders were allocated just 21 per cent of what they had paid for, as the IPO was massively oversubscribed. And Safaricom's share did not perform the way speculators had wildly dreamed. Instead of going from Sh5 to Sh15 shillings overnight, the shares started trading at between Sh6 and Sh8 in the first week. In July the price was down to between Sh5 and Sh6, then Sh4 in August and then Sh3 in October 2008. Thousands sold their shares at below the IPO price in desperation

But the IPO did reward long-term investors, and 10 years later Safaricom is trading at record highs at the Nairobi Securities Exchange (NSE). The shares were trading at Sh31 per share last week, and Safaricom accounts for 40 per cent of the value of the NSE and dominates trades and continues to attract key foreign buyers.

After Safaricom, other IPOs like Kenya Re and Access Kenya and listings by Equity and Co-operative banks sparked some investor excitement but at a much lower level. Other recent groundbreaking new products like M-Akiba, Exchange-Traded Funds (ETF’s) and Real Estate Investment Trusts (REIT’s) have also seen slow uptake by investors. At the same time, the NSE has also seen some underperforming companies in the Growth Enterprise Market Segment (GEMS) and there has been a spate of divestments and exits of companies like Access Kenya, CMC, Rea Vipingo and the pending Unga departure.

MORE IPOs NEEDED

That said, the country needs more IPOs and share listings. Kenya still has a relatively small number of listed companies on the stock exchange and many have been there since before independence. The NSE could use another Safaricom spark. Maybe the government could sell another 10 per cent of Safaricom and plug its budget deficit for the year instead of taking up more Eurobonds.

More companies should list and take advantage of the opportunity to raise funds from the public to finance their ambitious expansion and growth plans. The NSE would be a natural place for government companies to raise finance for infrastructure, oil, mining projects for companies like Kenya Pipeline, LAPSSET, and the National Oil Corporation.

While some companies like Nakumatt, Tuskys, and Family Bank have teased with offers to go public, more companies like Coca-Cola bottlers, Mabati Rolling Mills, geothermal power and agro-processing companies should be courted to list. Also, Kenya's mining bill, passed a few years ago, gives the government free carry of 10 per cent of mining shares of a company and requires that the mining companies list 20 per cent of their shares after four years for the public to buy.

But Kenya is not alone in this challenge in attracting IPOs and share listings. A recent study by White & Case called “Africa Focus: Spring 2018” found that while IPOs were globally preferred, that was not the case in Africa, where trade sales are the preferred exit route for investors followed by secondary buyouts. African stock exchanges are seen as illiquid and the report noted that "despite a large increase in IPO proceeds raised in 2016, African exchanges saw the lowest volume in IPO activity since 2013, with only 20 IPOs, compared to 30 in 2015".

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