Possible extension of Safricom IPO to bring Tanzanian investors By DAGI KIMANI THE EAST AFRICAN The Safaricom initial public offering closes this Wednesday, April 23, but a dramatic last-minute extension could be made for Tanzania if the country relaxes the ban on its citizens participating. Extending the IPO for Tanzanians, if it does happen, could potentially interfere with the proposed listing date, which has been set as June 9. Tanzania, which does not have a liberalised capital account, has barred its nationals from participating in the issue on the grounds that it would amount to capital flight since Safaricom will not be cross-listed on the Dar es Salaam Stock Exchange. The Bank of Tanzania (BoT) instructed the DSE not to participate in the IPO in an April 4 letter. Lead transaction adviser Dyer & Blair however wrote to BoT Governor Prof Beno Ndulu on the matter last week, asking that Tanzania reconsider its decision in the interests of regional integration. "We recognise and appreciate your concern that firms wanting Tanzanian shareholders should list on the Dar es Salaam Stock Exchange," wrote Dyer & Blair chairman Jimnah Mbaru in a letter dated April 15. "But it is our plan that all companies listed on the DSE, the Uganda Securities Exchange, the Rwanda Stock Exchange and the Nairobi Stock Exchange will soon be cross-listed." The possible extension for Tanzania is one of the issues raised last week by transaction advisors with Kenya's Capital Markets Authority (CMA), which will be expected to make a ruling on the matter if Tanzania revised its position. The CMA was on Friday also expected to act to try to seal loopholes that brokers who are registered as investment banks may use to gain undue advantage in the IPO. The investment banks were allowed to qualify as institutional investors largely to stabilise allocations for retail investors in the event of minor errors. Despite the Tanzanian hitch, analysts are bullish that the issue will be oversubscribed at anywhere between 150 and 400 per cent. An avalanche of applications are expected to be lodged this week, given that up to 70 per cent of applications during past IPOs, such as that of KenGen, were received in the final days. Initially, it was expected that up to one million retail investors would participate in the offering, but this figure has now been revised upwards to two million. Speaking to The EastAfrican last Friday, Mr Mbaru said that the issue was receiving particularly strong support in Rwanda and Uganda, which are classified in the local investors' segment and are expected to absorb 6.5 billion shares. Institutional investors from the two countries in particular are said to be interested in investing significant funds in the IPO. "The integrative nature of the IPO will advance the proposed creation of an East African Common Market," said Mr Mbaru. "This is why we are appealing to Tanzania to make a favourable decision on the matter as soon as possible." If, as expected, massive oversubscription occurs, local investors could be in for a major shock as they end up with far fewer shares than the minimum application level of 2,000, as a pro rata procedure will be used to make allocations. Using this method, the number of shares assured each investor is a paltry 100. Says the relevant clause in the prospectus: "(In case of over-subscription), applicants will be allocated 100 offer shares in the first instance and thereafter in multiples of 100 offer shares on a pro rata basis, rounded down to the nearest 100 shares." The pro rata method of allocation was adopted in a bid to curb multiple applications through nominee accounts, a method used by some brokers in the past to gain an undue advantage over other investors. Oversubscription by local investors will also mean that the proportion set aside for qualified institutional investors will fall from 35 per cent of the issue to 20 per cent. The 35 per cent of the IPO set aside for foreign investors is equivalent to 8.75 per cent of Safaricom's total equity. Britain's Vodafone Plc and the shadowy Mobitelea together already control a 40 per cent shareholding, meaning that the sale of the stake will drive foreigners' total shareholding in Safaricom to 48.75 per cent. Ownership by foreigners could actually go higher, given that those resident in the EAC have been allowed to apply for the Safaricom shares as "local residents." Shareholding by the Kenyan public, currently held in trust by the government, will on the other hand fall from 60 per cent to 51.25 per cent of total equity. Last week, the foreign-ownership angle continued to excite comment, with disquiet being expressed at the fact that while the qualification criteria for local institutional investors has been clearly spelt out in the prospectus, wide leeway has been given to the international lead transaction advisor, Morgan Stanley, to do the foreign allocations. Says the prospectus: "The allocation decision is a matter of judgment based on the global co-ordinator's and the lead transaction advisor's extensive experience in distributing offerings of securities. Normally, no one factor would be determinative in the allocation process and the particular facts and circumstances of the issuer and the investor will ultimately determine the basis of allocation." The Safaricom IPO, which opened on March 28, will see the Kenyan government sell a 25 per cent stake in the firm for Ksh50 billion ($757 million) through 10 billion shares priced at Ksh5 each. The Treasury says it needs the money to bridge financing gaps in social services such as education and health and recurrent expenditure. The IPO will almost double the number of shares traded at the NSE, which currently stands at 14 billion.