SAFARICOM IPO: A 'WHAT IF' MINORITY REPORT

SAFARICOM IPO:
A 'WHAT IF' MINORITY REPORT

FACTS
Company: Safaricom
Country: Kenya
Sector: Telecommunications
Number of subscribers: 9,245,000
Market share: 80%
Shares Offered: 10,000,000,000

Domestic Pool: 6,500,000,000

Breakdown: Retail (me and you) 3,380,000,000
Qualified Investors (Regional NSSFs) 2,730,000,000
Authorised Safaricom Dealers 130,000,000
Employees 260,000,000

Value of share: 5.7 Kshs
IPO price:
5 Kshs
Earning Per Share: 0.362 Kshs
Price Earning Ratio: 13.81
Profits after tax: 12,010,431,000 Kshs
Dividend Payout: 3.33% of profits
Allocation Results: 30th May 2008
Refund date: 9th June 2008
Trading date: 9th June 2008


Allocation.
Currently there are roughly 1,100,000 trading accounts on the East African Stock Exchanges, that's below 2% of the region's population.
Safaricom has been an eagerly awaited stock, even by those who have never traded a listed share let alone partake in an IPO- Initial Public Offer.
WHAT IF 3,000,000 new Trading Accounts join the 1.1m existing accounts: at a minimum application of 2000 shares that would total to 8,200,000,000 shares compared to the 3,383,000,000 allocated to retail investors equalling 142.6% oversubscription.

In simple terms this would translate to 925 (inclusive of the 100 guaranteed incase of an oversubscription) shares on Pro rata or in proportional basis IF the above holds.
In lay terms pro rata is kind of ratio basis of share allocation.
Say, you are offered 1 share for every 5 applied for.

OR WHAT IF all the Safaricom network subscribers (9,245,000) apply for the minimum 2000 shares; and that's for Kenyans alone.


Exchange Rate: Application
Safaricom IPO is aiming to raise over $700m by the 23rd April 2008, but it would not come as a shock if $2b came in. Remember all this money will have to be exchanged to the Kenyan currency before sharing in the IPO.
This shall no doubt result into an ARTIFICIAL gain in the Kenyan shilling on other currencies.
WHAT IF, for the case of Uganda the rate is at Kshs 1 for UShs 28 buying (as some banks are already trading).


Exchange Rate: Refund

With all the excitement that has followed the Safaricom IPO, a refund is inevitable and no ONE
(in the industry) will tell you that at refund, just like at application, there will be an ARTIFICIAL-though this time loss in the Kenyan shilling vis-à-vis other currencies.
WHAT IF, for the case of Uganda the rate at refund is at Kshs 1 for UShs 22 selling (Banks shall use their own rates). Imagine!



SO, WHAT NEXT?
Safaricom undoubtedly is massive, bringing to the market 10 billion shares where there existed 15 billions previously on the oldest Stock Exchange in the region.
A typical Star Trader shall by now be observing the impact of this obvious fact on their local Stock Exchange especially in the stock with regional shareholding. For instance, a Stanbic share has lost Shs25 (to 230) this week because many investors are selling off to plunge their funds into Safaricom despite the release of the bank's financial results; most likely this month.


The development though has brought some attraction to the Secondary Markets, with investors selling off part of their share-holdings to go for the "massacre" on the Safaricom IPO.
Good luck to all you investors,

For critiques and to receive the numerical breakdown of this WHAT IF scenario e-mail: eatrader@gmail.com

Muhimbise Andrew
+256 752 431064
Co-founder
Star Traders'
Inspiring the next generation of regional traders

The above Report appeared in the Red Pepper, Business Sense magazine, of Wedneaday 9th April 2008.