Monday, March 31, 2008

Is Safaricom worth Kobole?

As the Safaricom IPO opens this week, two question still haunt Kenyans: Who is Mobitelea? Is the Safaricom IPO, the investment opportunity that comes only once in a lifetime, kosher? All things held constant, Mobitelea stands to reap in excess of Kshs. 10b from this mouth-watering IPO...

Mobitelea Ventures Ltd is a shell company that in 2003 was allowed by Vodafone to acquire a 5% stake in Safaricom, which shares are now worth at least $100m. However, late last year, Vodafone refused a formal request from the PIC to reveal who owns Mobitelea. Mobitelea's shareholding in Safaricom was only revealed in a local newspaper in November 2006. Until then it had been assumed - even by the Kenyan government - that Safaricom remained a 60:40 joint venture between government-owned Telkom and Vodafone.

At the time PIC launched the investigation, it invited Vodafone to a meeting slated for January 30 in Nairobi. The invitation was declined but, in a letter to the committee, Gavin Darby, Vodafone Group's chief executive for the Americas, Africa, China and India, stated that Mobitelea was Vodafone's chosen partner in Kenya. "When Vodafone makes investments in new territories it is not uncommon that it works alongside a partner who typically gives advice on local business practices and protocol and the various challenges associated with investing in a new market. Vodafone would prefer to be in a position to make a comprehensive disclosure but, having taken legal advice, could be in breach of a duty of confidentiality were it to discuss Mobitelea further."

Documents show that Mobitelea was registered in Guernsey on June 18, 1999 - several months after Vodafone had struck a preliminary deal with the Kenyan government. Mobitelea's real owners are hidden behind two nominee firms, Guernsey-registered Mercator Nominees Ltd and Mercator Trustees Ltd. The directors are named as Anson Ltd and Cabot Ltd, based in Anguilla and Antigua. In his letter, Darby said that Mobitelea was allowed to invest in Safaricom "in return for its valued advice". In return for its services, Mobitelea was given $5m in cash and a 5% stake in a company that analysts value at $2bn.

In attempting to untangle Mobitelea's ownership structure, the big question is: Why did the government change its own rules of telecoms privatisation to allow Vodafone to acquire 40% of Safaricom, instead of the 30% limit that had been in place? Without the concession, the Kenyan government's current share of Safaricom would be worth an additional $200m. "This is all very murky. By refusing to cooperate, Vodafone is treating us like children and hindering our pursuit of knowledge," Said Justin Muturi, chairman of the PIC in the 9th Parliament. Mwalimu Mati, a former head of the local chapter of Transparency International, also believes the British authorities should investigate the Mobitelea deal. "At best Mobitelea has been given a bite at the Safaricom cherry ahead of ordinary Kenyans."

Now the bombshell: The government actually did not contravene it's rules on privatisation. Vodafone owns excatly 30% of Safaricom as stipulated by law. As it turns out, Mobitelea's share of the cake is not 5% but a whooping 10%! That contentious 10% of Telkom (K) Ltd shares in Safaricom were irregularly transferred to Mobitelea Ventures without the consent of Treasury and that of the parent ministry according to the Fifteenth Report of the Public Investments Committee on the accounts of State Corporations 2007. The Parliamentary Investments Committee in its report held that “there appears to have been a conspiracy by some officers of Government, Mobitelea Ventures, Vodafone Plc and Telkom board to defraud the public of its shares in Safaricom. Neither the Management of Safaricom nor that of Telkom could produce the written request by Vodafone asking for increase in Vodafone’s’ shares from 30% to 40%. This supposition is further affirmed by the inexplicable disappearance of the records of Vodafone (K) from the Registry of Companies”.

As we all now know, Mobitelea stands for Moi Biwott Telecoms East Africa. And, if you are to believe the PNU, the law does not empower them to stop an IPO in progress. Imagine that! So what does this mean? Even after more than 5 years in the cold, Moi and Biwott are still ripping off Kenyans, aided by none other than the government that assumed power on the promise of "zero tolerance" to corruption. So, whether you like it or not, Moi and Kipyator are walking away with a cool 10b to add on the billions they have collected from the Treasury over the years. So as we all rush to get a piece of this most profitable company in East and Central Africa, let us honestly ask yourselves: Why.

I now leave you with the full text of ODM's Statement on the privatisation of Safaricom:

Few public events in the financial realm have been as eagerly awaited in the history of our country as the forthcoming Safaricom public offering. The company is one of the most successful in our country’s history, thanks to the investments made by Kenyans’ hard-earned tax contributions.

For ODM, the most important dimension of this and all other privatizations of public corporations is to ensure that the ordinary Kenyan is able to compete in the purchase of shares on a level playing field with all other Kenyans and institutions. These public offerings offer Kenyans not only an opportunity to benefit from their small investments the way the well-to-do have always been able to do, their purchase of such shares also gives them a stake in the future of this country’s peace and stability.

ODM last year opposed the sale of Safaricom because it did not meet this cardinal test of providing a level playing field for all Kenyans who wished to participate in the Safaricom share offering, rather than organized business enterprises which stood to reap most of the benefits. To ensure that this level playing field obtains for ordinary Kenyans, ODM believes that exceptional arrangements must be made for a sale as eagerly sought by millions of Kenyans as this one. For example, the requirement that shares need to be purchased only through banks and brokerage houses, which are difficult for most Kenyans to access, needs to be reviewed.

We also believe that the entire offering, and not just a portion as currently envisaged, must be made available for Kenyans.

There are, of course, a host of other important reasons which forced us to oppose the sale. We moved to the High Court of Kenya to seek orders compelling the Government to bring into operation the Privatization Act and to conduct the intended privatization of Safaricom within the provisions of the Act. ODM had the following major concerns with the Safaricom privatization:

• The ownership of shares worth in excess of five billion shillings in Safaricom by MOBITELEA under circumstances that have never been made public and which appear to have been made otherwise than as a “true investment” by the owners of MOBITELEA poses the danger that these “ghost owners” will now be unjustly enriched. The identity of MOBITELEA and its shareholders is still a secret; having been kept hidden by the Government;

• The Privatization Act was enacted in 2005 to regulate all future privatizations. By the time that ODM moved to Court, the Minister for Finance had not published a notice in the Gazette bringing the Act into full force and effect, a period in excess of two years, thereby rendering the legislative authority of Parliament nugatory.

• The Privatization Act requires Parliamentary approval of all privatizations and sets up a Privatization Commission, imposing standards of transparency to protect the public interest which were not being followed in respect of the Safaricom privatization.

• Issues of equity with regard to the distribution of Safaricom shares amongst various income groups, gender and regions of Kenya had not been addressed.

• There was a deliberate attempt by the Government to fast-track the privatization of Safaricom before the General Elections in December 2007 even though the fundamentals, such as the capacity of the Nairobi Stock Exchange to handle the transaction, remained doubtful. The timing just before the Election and the Christmas gift buying period meant there would be a less than robust appetite for the stock among ordinary Kenyans. There was strong suspicion that the speeding up of the process was being caused by considerations other than the public interest.

The court case by ODM was therefore initiated in the public interest: to protect the legislative authority of Parliament, to bring transparency to the privatization of Safaricom, to stop unjust enrichment by a few individuals who appear to have acquired interest in Safaricom vide MOBITELEA, and to demand equity in the distribution of the shares of Safaricom to all segments of Kenyan society.

The High Court declined to grant the orders sought by ODM. ODM then proceeded to the Court of Appeal but its appeal was further denied. ODM’s only interest in pursuing the case was the public interest.

In the meantime, the Minister for Finance, Amos Kimunya, published a Gazette Notice bringing the Privatization Act into full force and effect from January 1, 2008. He then proceeded to appoint a Privatization Commission. All these actions are a direct result of the pressure generated by ODM’s court case.

ODM is keen to ensure that the privatization of Safaricom proceeds as smoothly and as quickly as possible. However, certain fundamental questions in addition to those stated above need to be addressed.

1. The privatization of Safaricom must be in conformity with the provisions of the Privatization Act. The process should therefore be transferred from the docket of the Investment Secretary at the Treasury to the remit of the Privatization Commission, as the law requires.

2. The preparation and submission of a Privatization Strategy to Parliament for public debate is required under the Privatization Act.

3. The issues of equity raised above need to be formally and systematically addressed. Given the recent problems at the Nairobi Stock Exchange, is this the right time to undertake such a major privatization at the Exchange? In any event, concrete measures have to be taken to address the regulatory and structural inefficiencies of the bourse.

4. How was the value of Safaricom shares established?

Theses and numerous other questions that remain unanswered must now be addressed in the interest of transparency on a subject that it is of such immense interest and concern for countless Kenyans. The only prudent approach therefore is to subject the entire privatization process of Safaricom to the requirements of the Privatization Act, as now in force.

Our aim as a party is to encourage and support economic growth with equity and social justice in our country. As such, the sale of Safaricom through the Stock Exchange is a very positive step forward which Kenyans applaud, but we must ensure that the sale is conducted in a way that will benefit the greatest number of them. We should therefore proceed with the offering within the requirements of the Privatization Act, which will of course mean that the share offering needs to be delayed.

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