News

By A STAFF WRITER

Vodafone Plc of the UK, joint venture partners with Telkom Kenya in Safaricom Ltd, have expressed fears that delays by the Kenya Cabinet in approving a critical agreement that must be signed before the planned initial public offer (IPO) of the mobile phone company can be put on the road, may render it impossible to float the shares of the company before December. Well-placed sources told The EastAfrican that the UK company has already registered its concerns with the government in a letter to the Minister for Finance, Amos Kimunya.

It is not clear why the government has dragged its feet on the matter. But it would appear that a major factor has been the electioneering mood that has gripped the country, and the fact that the Cabinet has not been meeting as frequently as before. Without the Cabinet approval, the IPO implementation committee — the body steering the IPO process — is finding it difficult to proceed with any work, despite having already successfully procured IPO advisory services for the offer.

Already, signs of stress on the IPO timetable are evident. Although the Treasury will not admit it, the delay in the signing and formal contracting of the IPO advisory services — won by a consortium led by local investment bankers, Dyer and Blair Ltd — has something to do with the delays in securing the approvals by the Cabinet. According to procedure, a due diligence on Safaricom Ltd will have to be conducted. The reporting accountants will also need time to do a fresh audit on the books of the company for a period stretching as far back as five years.

More time will then be required to put the prospectus together, get it printed and then circulate it. Even more time will be required to put such a large IPO on offer — time for processing the applications, time for allocations and, finally, time for refunds. By the most conservative estimate, the Safaricom IPO process will need at least 12 weeks to complete from the time of formally contracting the advisors.

Thus, the chances are that the IPO will last deep into the electioneering period — exposing the process to the risk of being overpoliticised. In December last year, the government and Vodafone signed an agreement that spelt out the conditions and measures to be approved and implemented before flotation of the shares of Safaricom Ltd. The most significant of these conditions was an agreement between the parties that shares held by Telkom Kenya in Safaricom needed to be transferred to the Treasury first.

It is a critical step for the UK investor because with Telkom itself having been put on sale by the government, Vodafone faced the prospect of being forced by the sale of Telkom Kenya into accepting a new shareholder and partner in Safaricom Ltd. Vodafone also wants the government to formally repeal a provision in a shareholders agreement that the two parties signed in 1999, which stipulated that Safaricom Ltd and Telkom were not allowed to compete.

Specifically, the government and Vodafone agreed to amend the 1999 shareholders agreement to allow Telkom to compete with Safaricom in the telecommunications business. Initially, Vodafone had demanded — as a condition for the IPO — that the government’s 9 per cent shareholding in Safaricom be transferred to a special purpose vehicle with Vodafone being given an unconditional option for a period of five years to acquire 100 per cent of the special purpose vehicle after six months of the listing of the IPO.

But after negotiations, the whole issue was dropped. Consequently, the arrangement now is that the government will be selling 25 per cent of the ordinary shares of the company to the public. The parties also agreed that the IPO process and pricing be managed by an IPO committee of which the management of Safaricom will be a member.

In the middle of the negotiations — in January this year — Vodafone allowed Telkom to pledge 9 per cent of the total issued share capital of the company to a syndicate of commercial banks as security for a one-year finance term loan of Ksh5.8 billion ($86.5 million) that Telkom Kenya was to use for the purposes of financing its staff retrenchment programme. What this means is that after the IPO, Vodafone will be the single largest shareholder in the company with 40 per cent.

But it is understood that the agreement being negotiated now will include an arrangement that will allow the UK investor to retain some of the powers and rights it enjoys under the current shareholders agreement — including the right of veto over appointment of the managing director and finance director of the company.