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Safaricom IPO haunting banks
By P Gitau Githongo
THE EAST AFRICAN
Posted Saturday, February 7 2009 at 12:17
By P Gitau Githongo
THE EAST AFRICAN
Posted Saturday, February 7 2009 at 12:17
It is approaching a year since Kenyas most famous stock listing opened, but the fallout and increasingly vicious recriminations persist.
An IPO that garnered an estimated 750,000 subscribers and about $800 million, with an oversubscription of 532 per cent, should have been heralded as an unparalleled success.
Instead, last week the Kenya Association of Stockbrokers and Investment Banks (KASIB) resolved to conduct a forensic audit of the stakeholder institutions involved in the Safaricom IPO with particular focus on the lead receiving bank, Citibanks role.
With prices dipping below the projected initial trading price of Sh8 (10 US cents) per share to Sh6.50 within a few days of trading, prices soon plunged below the Sh5 offer price and today trade at an average of Sh3.25.
Despite a daily trade in Safaricom shares ranging in millions of units often representing more than half of all the traded equities on the NSE, this downward trend in its share prices has been blamed for the heavy decline of other counters as well.
Hundreds of thousands of small-time investors have seen the value of their shares drop in the process, adding to the gloom that characterised 2008 as the nation struggled to recover from the post-election violence.
In truth, this strong downward trend known in the industry as a bear market had begun by 2007, and ominously has continued into 2009.
During this period Nyaga Stockbrokers collapsed, while Discount Securities was placed under receivership.
In 2008, six stockbrokers were given interim licences by the industry regulator the Capital Markets Authority; with the review of 2009 licences presently ongoing.
But the Safaricom drop has not been the only contributor to this downturn.
The global credit crisis virtually dried up the Diaspora remittances that had previously fuelled Kenyas equities and housing development boom.
Inflationary pressures, in turn, fuelled by the oil price surges and food shortages of early 2008, have exacerbated a business environment also characterised by political bickering and an ever shaky coalition government.
What has hitherto been unstated is the impact this collapse in equity prices has had (and continues to have) on local commercial banks.
Even before the Safaricom listing, the use of equities as collateral security by banks lending to the private sector was still relatively modest but growing in popularity.
During the recent IPOs of KenGen, Mumias and Safaricom, local and multinational commercial banks were increasingly gaining an appetite not just for using shares as security, but actually targeting lending to prospective investors seeking to purchase shares.
Under this arrangement, the shares become the security, financed by expected income streams drawn from the investors monthly inflows.
Several banks welcomed the arrangement with open arms, even as analysts fretted over its ethical and prudential underpinnings.
With offers of hassle-free share purchase loans, even local market leader Barclays Bank had joined Kenya Commercial Bank, Equity bank, Family Bank, among other major players on this bandwagon.
A few banks, most notably Standard Chartered Bank, chose not to join the rush. Several months later, the naysayers appear vindicated.
For most of the small first-time investors, the plan was to jump out early, particularly when prices hovered around the Sh6.00 to Sh6.50 mark.
Even before the protracted share allocation and refund sagas were concluded, most investors still held on to the forlorn hope that prices would recover within a few months and held out reasoning that a few months of loan repayment would be more than off-set by prices of Sh8 or better.
Over the past 6 months, this group has had to grapple with the insidious question of negative equity positions.
P. Gitau Githongo is a financial analyst based in Nairobi
