THE SAFARICOM IPO

LESSONS LEARNT
STAKEHOLDERS WORKSHOP
24 SEPTEMBER 2008

PRESENTATION OUTLINE
1.
2.
3.
4
4.
5.

Background
Key lessons
Key Challenges
Recommendations
The way forward

BACKGROUND
The process towards privatization through
the NSE commenced in June 2007 with the
Government placing an advertisement for
applications for provision of advisory
services
Competition for arranging the IPO started in
earnest in August with the invitation of 75
advisors to present technical and financial
proposals on how the transaction should be
structured

BACKGROUND
The firms were organized
g
in consortia,, which
for the first time included international players
The offer
Th
ff attracted
tt
t d severall high
hi h profile
fil
international investment banks such as
R
Renaissance
i
C
Capital
it l and
d Morgan
M
Stanley.
St l
The application for approval of the prospectus
for the offer for sale by the Government of
Kenya of 10 billion ordinary shares and listing
of 40 billion ordinary shares of Safaricom was
made
ade to the
t e Authority
ut o ty o
on 20
0 November
o e be 2007.
00
4

BACKGROUND
The 10 billion shares on offer represented 25% of the
issued shares in Safaricom
The Authority approved the prospectus and the offer for
sale of 10 billion ordinary shares and listing of 40 billion
ordinary shares of Safaricom Limited on 14th March 2008
The Offer opened on 28 March 2008 and closed on 23 April
2008.
The allocation results were announced on 30 May 2008
indicating the IPO was significantly oversubscribed.
The dispatch of share certificates and refund cheques was
to commence on 9 June 2008.
5

OFFER STATISTICS

Shares Offered
adjusted for Claw
back (Millions)

Shares Applied

Subscription
Rate

Allocation
Rate

Retail

4,880

22,637,470,460

464%

21.2%

QII

2 730
2,730

8 758 740 000

8,758,740,000

321%

31 1%
31.1%

Authorized
Dealers

130

422,158,200

325%

30.7%

Employees

260

307,549,800

118%

84.5%

International

2,000

14,220,000,000

711%

As per the
Book Building

Total

10,000

46,344,343,460

463%

KEY LESSONS LEARNT

1. Profile of Kenyas capital market

Billed the largest IPO in Kenyas history,

S f i
Safaricom
has
h significantly
i ifi
l enhanced
h
d the
h profile
fil off
our market.

The bids for transaction advisory services attracted

some of the biggest names in investment banking

The foreign investors

investors pool was subscribed by
711% with shares specifically reserved for foreign
investors for the first time.

KEY LESSONS LEARNT

2. Absorptive
p
Capacity
p
y

The IPO has left no doubt as to the huge potential our

market has for resource mobilization.

The Government was looking to raise Kshs 50 billion

but the offer was oversubscribed by 363% attracting a
total of Kshs 231 billion

Di ib i b
Distribution
by D
Domicile
i il

Accounts
opened

Pre IPO

During IPO

Post IPO

As at 20/3/2008

20/3/2008 26/6/2008

Total

896,213
896 213

849,390
849 390

1 745 603
1,745,603

Share
immobilization

5,257,183,506

15,364,315,550

20,621,499,056

FI/FC accounts

6,252

2,182

8,434

1,261

7,984

9,245

EAI/EAC
accounts

Impact on the secondary market

Activity improved in virtually in all parameters of

market
k t performance.
f

Market capitalization rose to Kshs 1.21 trillion as at

July 11, 2008, the highest ever in Kenyan history.

Market turnover rose to a daily average of Kshs 1

billion following the injection of 10 billion new shares

10

Market Performance Pre/post Safaricom IPO

T/O
(Kshs
MONTH bn)

Share
Volume
(Mn)

NASI

NSE
Index

Mkt. Cap
(Ksh bn)

T/O Ratio
(%)

Bond T/O

Jan

7.4

205.28

4796

777.1

0.9523

3.9

F b
Feb

8 01
8.01

198 83
198.83

94 24
94.24

5072

830 6
830.6

0 9644
0.9644

32
3.2

March

7.32

180.64

94.64

4843

781.7

0.9364

14.3

April

5.64

141.77

106.66

5336

908.2

0.621

23
2.3

May

6.84

168.03

108.82

5176

916.8

0.7461

3.04

June

22.13

2154.9

112.11

5185

1230.7

1.7982

4.91

July

14.6

984.01

104.64

4868

1122.2

1.301

2.4

August

7.489

490.78

97.55

4648.78

1102.1

0.6795

8.886

Sep

3.838

178.11

85.99

4055.23

953.21

0.4026

3.56

11

Safaricom as a percentage of overall

market cap

Safaricom Market Capitalization

p
as a percentage
p
g of Total Market Capitalization
p
24.00

23.50

23.56

23.00
22.63
22.50

22.00
%

21.82
21.50

21.00
20.87
20.50

20.00

19.50
JUNE

JULY

AUGUST
Month
Safaricom Market Capitalization

12

SEPTEMBER

Safaricom p
price movement as a p
percentage
g of Total
Market Capitalization 2008

1400

1200

Price (Kshs)

1000
5
800
4
600
3
400
2
200

1
0

0
June

July

August
Month

Market Capitalization

13

Safaricom Share Price

September

Market Capitalization (Ks

shs bn)

Safaricom Price Movement vs Market Capitalization

Sh
Share
price
i ttrendsd Safaricom
S f i
Safaricom Price movement ((June-September
p
2008))

9
8
7

Price (Kshs)

6
5
4
3
2
1
0
Week 1

Week 2

Week 3

Week 4

Week 5

Week 6

Week 7

Week 8

Week 9 Week 10 Week 11 Week 12 Week 13 Week 14

Safaricom Price movement

14

M k t Performance
Market
P f

1500

10

1000

500

15

Au
gu
Se
st
pt
em
be
r

Month
Share Volume

Equity Turnover

Share Volume
e (Mn)

15

Ju
ly

2000

Ju
ne

20

ay

2500

Ap
ril

25

Ja
nu
ar
y
Fe
br
ua
ry
M
ar
ch

Equity T/O (Kshs bn)

Equity T/O vs Share Volum e

(Pre & Post Safaricom -2008)

Safaricom VS Total monthly turnover trends

Safaricom T/O vs NSE T/O (2008)

(
)
25000

22130

Turnover (Kshs mn)

20000

15000

14446.45

14600

10000
7489
5007.332

5000

3838
2170.024
1164.642
0
JUNE

JULY

AUGUST
Month
Safaricom T/O

16

NSE T/O

SEPTEMBER

Market Turnover

Market Statistics obtained in July 2008 indicated

that NSE turnover increased substantially
following Safaricom listing.
listing

Turnover from
f
January to May was Kshs 700
billion while June alone recorded a turnover of
K h 44 billi
Kshs
billion or approximately
i
l Kshs
K h 1.4
1 4 billion
billi
in aggregate commission in just one month. The
same is
i applicable
li bl for
f fund
f d managers and
d other
h
intermediaries.

17

Safaricom turnover as a p
percentage
g of NSE
turnover

Safaricom turnover as a percentage of total NSE turnover

70

65.3%
60

50

40
%

34.3%

29%

30

30.3%

20

10

JUNE

JULY

AUGUST
Month

18

SEPTEMBER

New investors in the market

Prior
P
i to
t the
th OFS,
OFS over 700,000
700 000 CDS accounts
t were
opened.

Number of investors in NSE increased to nearly 1.5

million
illi from
f
800,000.
800 000

This is likely to enhance liquidity in the market

19

Net foreign investor inflow

(March to September 2008)

Foreign
g Investors Net flow

10.00
8.52

8.33

5.00

0 80
0.80

0.04

0.00
March

April

May

June

-0.83
July

August

September

-5.00
-7.36
-10.00

-13.90
-15.00

-20.00

20

Foreign Investors Net flow

KEY CHALLENGES
1. Application processing capacity
The capacity to process the IPO was outstretched for the

agents, advisors, receiving banks, and registrars

Last minute submission applications by agents
Long queues throughout the four weeks of the offer, the

longest ever for an IPO in Kenya

Inefficiency of the electronic application process brought its

own challenges
g
Cases of incomplete, erroneous applications after the closure

d t and
date
d in
i certain
t i incidents,
i id t rejection
j ti off applications
li ti
21

KEY CHALLENGES

22

2.

Refund Process

Delays in process and refunds from receiving bank

and agents

Errors in names, amounts and omissions in refund

cheques

F il
Failure
to
t effect
ff t ETF as preferred
f
d by
b investors
i
t

Receiving bank delays in rectifying mistakes relating

to refunds

KEY CHALLENGES
3. Allotment
High local demand leading to low allotment of 21% for

i di id l
individuals
There ha
havee been ssuggestions
ggestions that Ken
Kenyans
ans sho
should
ld be gi
given
en

preference in future privatizations

4. Book building
There was a hybrid of fixed price and book-building

23

KEY CHALLENGES
5. Conflict of Interest
There are concerns over the zero or near zero bids
Same person performing Advisory role and Placing Agent Role in

the IPO

6. Borrowing to buy shares

Many investors incurred huge losses after initially securing easy

loans from commercial banks to invest in the IPO

IPO.
There were other hidden costs such as service charges (3%) on the
borrowed amount.
Shares collateralized by banks.
24

KEY CHALLENGES
7 Fraudulent Activities
7.
Cases
C
off fforged
db
bankers
k
cheques,
h
d
deposit
it slips
li and
d

application forms prevalent

Multiple applications using forged documents or

misleading
i l di information
i f
i

25

OTHER CHALLENGES
Liquidity squeeze
squeeze- Liquidity in the money market was

tight over the offer period.

Systemic risk - Due to its sheer size, the listing of

Safaricom shares portends a market risk accounting for

a significant percentage of market capitalization and
trading volumes.

26

OTHER CHALLENGES
Central Depository System-Cases of failure to detect

multiple
lti l application
li ti andd uploading
l di data
d t to
t wrong accounts
t
were reported.
Use of Collective Investment Schemes high charges by

CIS lowering investor returns, high minimum investment

amounts.
t
Investor education - Neglect to inform themselves by some

investors and the public in general on of the details of the

offer and general capital markets matters.
Regional integration -Tanzanians were not allowed to
participate in the IPO due to limitations of their capital
account
27

RECOMMENDATIONS AND THE

WAY FORWARD

28

ISSUE

1 Application
processing
capacity

29

RECOMMENDATION

OUTPUT/
TARGET

TIME
FRAME

Clear guidelines prior to approval of IPO on the

responsibilities of the transaction team including
lead transaction advisors, sponsoring
stockbrokers, receiving banks, registrars and
placement agents.

Improved
efficiency

October
2008

All agents processing IPOs including stock

brokers and investment banks should be
mandated to open specific IPO accounts for
audit trail

Enhanced
investor
protection

October
2008

CMA to conduct spot check inspections to

ensure compliance.

Increased
compliance

Next IPO

Automation of back office systems

Improved
efficiency

June 2009

All received
i d applications
li i
to be
b processedd andd
submitted to the receiving bank every 3 days

E h
Enhanced
d
investor
protection

Next
N IPO

Dela s in ssubmitting
Delays
bmitting applications by
b agents
should be penalized

Increased
compliance

Next
Ne t IPO

OUTPUT/
TARGET

ISSUE

RECOMMENDATION

Refund
Process

A clear refund policy to be included in the Efficient

prospectus addressing all options and procedures processing of
for refunding excess monies to investors.
investors.
refunds

Immediately

Make provisions to penalize receiving banks for Efficient

Immediately

TIME FRAME

non-compliance
nonp
and/or errors
errors..
pprocessing
g of
All IPO applicants to be required to have bank refunds
accounts..
accounts
The provision for interest accruing to the ICF Efficient
should be amended to cover the period until all the processing of
refunds have been processed by the receiving refunds
bank..
bank

30

Immediately

3.

ISSUE

RECOMMENDATION

OUTPUT/
TARGET

TIME FRAME

Allotment

Government to be encouraged to give

preference to its nationals where there is
evidence of strong domestic demand.

Broader
ownership of
national assets
by Kenyans

Next
Privatization
IPO

A clear allotment policy and procedures for

dealing with overover-subscriptions and underundersubscriptions in the prospectus

Increased
market
confidence

Next IPO

Transparent adherence to the allotment policy

policy..

Increased
investor
awareness

Immediately

4.

Book-Book
building

CMA to make specific provisions for book

book-building in its regulations

Increased
market
confidence

October 2008

5.

Conflict of
interest

Lead Transaction Advisoryy role and the Placing

g
Agent role should not be performed by one
entity in the same IPO

Improved
p
corporate
governance

October 2008

31

6.

7.

8.

ISSUE

RECOMMENDATION

OUTPUT/
TARGET

TIME
FRAME

Borrowingg to
buy shares

Targeted
g
investor education

Informed
investors

Immediate

MoUs with other financial sector regulators

Enhanced
cooperation
p

October 2008

The minimum number of receiving banks

should be determined based on size of the
issue

Better liquidity
spread

Next IPO

Allow all investors to pay for the shares after

allotment in IPOs

Better
efficiency

Next IPO

Minimum standards of internal controls at

agents and banks to prevent and detect fraud.
Eg Daily cash /payments reconciliations
during IPO, KYC procedures.

Better risk
management

Immediate

Better risk
management

Immediate

Liquidity
Squeeze

Fraudulent
activities

Timely investigations and execution of

findings.

32

Use of multiple applications amounts to

cheating and should be penalized

9.

10.

11.

33

ISSUE

RECOMMENDATION

OUTPUT/
TARGET

TIME
FRAME

Central
Depository
System

The CDSC must put in place systems to protect

the integrity of data and information eg system
audit of CDSC

Better risk
management

Immediate

Enhance system functionality to prevent

multiple accounts

Better risk
management

Immediate

CDS system Audit

Enhanced
investor
protection

Immediate

Authority to develop guidelines on the use of

nominee accounts

Better risk
management

Immediate

Routine inspections to ensure that nominee

accounts are not abused

Better risk
management

Immediate

The Authoritys continuous surveillance of

trading and settlement processes.

Increased
investor
confidence

Immediate

Nominee
accounts

Systemic
risk

ISSUE

RECOMMENDATION

OUTPUT/TA
RGET

TIME FRAME

12.

Use of CIS

Retail investors should be encouraged to invest

through CIS

Informed
investors

Immediate

13.

Investor
education

There should be a massive investor education

exercise on investing in IPOs (this should
cover risks of borrowing to invest in IPOs,
b fit off investing
benefits
i
ti through
th
h CIS andd dangers
d
of speculative tendencies).

Informed
investors

Immediate

14.

Regional
integration

To pursue integration of capital markets

through the common market protocol

Integration of
E A Capital
E.A.
markets

Ongoing and
Continuous

34

WAY FORWARD

Prudential guidelines - the

h Authority
h i will
ill develop
d l prudential
d i l
guidelines for processing IPOs to ensure order and transparency.
The following issues will be addressed under the guidelines:

35

A clear allotment policy and procedures for dealing with oversubscriptions

and undersubscriptions
A clear refund policy addressing all options and procedures for refunding
monies to investors.
All IPO applicants to be required to have bank accounts.
Cl guidelines
Clear
id li
on the
h responsibilities
ibili i off the
h transaction
i team including
i l di
transaction advisors, sponsoring stockbrokers, receiving banks, registrars
and placement agents.
Require
i issuers
i
andd selling
lli agents to sensitize
i i investors
i
on the
h implications
i li i
of oversubscription and allotment policy;
Selling Agents should establish clear operational procedures to collect
complete information from clients in addition to executing all Know Your
Customer obligations;
Dedicate adequate resources to deliver on contractual obligations.

WAY FORWARD

IPO Manual - the Authority will in collaboration with other

market stakeholders partic
particularly
larl the stock exchange,
e change
investment banks and brokers develop an IPO manual and a
pprototype
yp pprospectus/
p
information memorandum, application
pp
form and agents manual to guide the process.

There should also be mandatoryy trainingg for all representatives

p
dealing in an IPO including selling agents, receiving banks and
registrars to be provided by the lead transaction adviser.

In addition, specific penalties should be imposed to agents that

submit incomplete or erroneous application forms. These can
be recovered from the commissions payable to them to instill a
sense of responsibility.

36

WAY FORWARD

Enforcement - the Authority will be very strict in

enforcement of securities laws

Timely resolution of complaints of irregularities and

human errors in the applications and refund process.

Transparent adherence to the allotment policy.

Adequate communication
Ad
i i where
h there
h are unforeseen
f
delays in the IPO processing to ensure that investors
remain
i engagedd andd to pre-empt any nature off panic
i
in the market.

37

END************

END

38