News

Written by Albert Muriuki

Safaricom’s Initial Public Offering appears set to go on as scheduled following a decision by losing bidders to cancel plans to appeal against the award of tenders for advisory services.

The consortium that had sought evaluation summaries from Investment Secretary Esther Koimett yesterday said they had made their concerns known and did not wish to pursue the matter with the Procurement Appeals Board.

“We will not take the matter further. We have made our concerns known to the authorities,” sources close to the SRK consortium, which had sought an evaluation summary over its loss of the lead transaction advisor and lead sponsoring broker role to Dyer and Blair, said.

Despite initial indications that the legal, receiving bank and registry tenders were also headed for disputes that would have delayed the IPO, inquiries indicated that the losers had accepted the results after receiving the valuation summaries.

Although bidders insist that valuation summaries are meant to help them know where to improve in pitching for other jobs, they are more often than not a statement of intent to challenge the tender process.

Standard Investment Bank had petitioned over the valuation of both technical and financial bids for the IPO. The SRK consortium comprised Standard Investment Bank, Renaissance Capital, KPMG, Apex Investment Bank and African Alliance Investment Bank.

The legal bid had raised eyebrows following the premature opening of the financial bid placed by the Rachier & Amollo Advocates consortium. Speaking soon after the winners were announced on August 23, the firm’s managing partner Jopham Okome Arwa stated that it would abide by the outcome.

However, a section of lawyers, aggrieved that the low price of Sh2.5 million placed by the winning consortium would set a bad precedent in view of the indemnity cover involved, had considered an appeal.

The offer heralds an all-time low for legal advisors for public IPO’s but other industry players saw the outcome, as heralding a new beginning for upcoming Kenyan law firms getting into the lucrative public listing business.

“The Muriu Mungai Consortia’s price was extremely low, but I think their intention was really not to make money but to enter into the IPO business,” a commercial lawyer said at the time.

The legal brief was won by the Muriu Mungai consortium which comprises the firms of Muthaura Mugambi Ayugi & Njonjo Advocates, Kipkorir, Titoo & Kiara Advocates and the London based Stephenson Harwood LLP.

A source from the consortia told The Business Daily that they had received no communication from Treasury challenging their win. Treasury officials said the Safaricom IPO was scheduled to begin in November this year and were confident that legal issues surrounding the enactment of the Privatisation Act would not derail the process.

“Even if the Privatisation Act was applied it would not invalidate sale of public assets that has been done within the existing law,” a Treasury official said. A group of MPs had wanted to have the IPO stopped until the Act is enacted.

The Kenya National Association of Share and Stockholders also wanted the exercise halted until a privatisation commission was put in place to provide guidelines on equitable distribution of shares, even to marginalised communities.

The Commission is provided for under the Privatisation Act of 2005 but is yet to be formed. The Treasury invited applications for the chief executive’s position only two weeks ago.

Analysts have dismissed the quest of equity in sale saying it is impractical to vet trading at the secondary market to suit regional or sectoral interests. They fall back to the initial public offering of Mumias Sugar Company shares when a proportion was reserved for sugar cane farmers, who later sold their scripts to middlemen who capitalised on the ignorance.

“Some people tried to bring the same argument during the sale of KCB and NBK shares in the past. But there are some parts that are simply not ready to deal in shares yet and the country cannot wait till they are ready,” said Mr Steve Maina of Sembast Capital.

The Safaricom IPO is set to generate Sh1.7 billion in transaction fees and is of great importance to the Government since it will be a major source of money to bridge a huge budget deficit of Sh109 billion.

The Government has a budget deficit of Sh140 billion for the current financial year which Finance minister Amos Kimunya targets to plug with Sh42 billion from the privatisation process.

The government is selling a 25 per cent stake in the cellular phone provider — owned 40 per cent by Vodafone Plc— for an estimated Sh34 billion making it the most significant divesture programme during the fiscal year.

Besides Safaricom, the government is targeting to raise Sh5.6 billion from the sale of a 51 per cent stake of Telkom Kenya to a strategic partner.

Depending on the firm’s return to profitability, Treasury would cede a 19 per cent stake and the strategic partner an 11 per cent stake in the national operator for sale to the public through an IPO. A bidders conference for the strategic investors was held last month.

The sale of a further 19 per cent stake in KenGen is also factored in to raise Sh2.5 billion after it was suspended in May after Mr Kimunya said the market price was not conducive to such a sale.

Since then the KenGen share price has risen from Sh17 per share to Sh31 per share and is projected to shift ground depending on the company’s annual results expected later this month.