Thursday, May 17, 2007


I am all for
Safaricom to have a partial listing abroad;either on the LSE(London Stock Exchange) or NYSE( New York Stock Exchange). The benefits of listing safaricom offshore are numerous, such as:
-A foreign listed stock will bring the Kenyan and East african market to the attention of investors in the Developed world and raise our profile as a country.South Africa,Egypt,Nigeria and even Malawi have their local companies like ABSA,Orascom Telecom,Telecom Egypt and United Bank for Africa-Nigeria are listed abroad.

-Investors will consider Kenya a serious and viable investment destination because by virtue of cross-listing our LOCAL COMPANY shares off-shore it means that we have locally based companies that can operate within World-class corporate Governance and Financial regulations. i.e. to cross-list on NYSE or LSE you have to adhere to UK or US listing standards.

-Cross-listing of Kenyan companies in the UK/US exchanges will provide foregn inestors and Kenyans in the diaspora a more efficient way to purchase Kenyan shares.It will probably be more liquid and efficient for them(Investors outside Kenya).

By the way lack of liquidity in our capital markets is what prevents some Foreign investors from entering them. -Cross listing will also enable local companies have more options for raising capital I am of the opinion that some Kenyan companies are large enough to cross-list abroad.For instance,KCB, First Chartered and Jubilee and Equity in the next couple of years.

How would the Sale of Safaricom shares offshore be done?

There are several methods of listing abroad.Some of the methods are:

Depository Receipts
These are negotiable finacial instruments that represent shares in a company.For instance, Vodafone PLC has Depository receipts(DR) that trade on the NYSE.the Ratio of DR to Ordinary Shares is 1:10 meaning that 1 DR represents 10 ordinary shares of Vodafone PLc.

In Safaricom's situation a block of shares in Safaricom(K) Ltd would be deposited with a local Custodian Bank which would act as an agent for the Depository Bank in London or New York Exchanges.

The Depository Bank would then issue Depository Receipts based on the Block of shares held on its behalf at the local Custodian Bank or Branch.
For example, if the shares deposited at the custodian Bank were 100,000,000(One hundred million shares) then Depository Receipts were issued in the DR:Ordinary share ratio of 1:10.
Each Depository receipt listed abroad would represent 10 ordinary shares in Safaricom(K) Ltd.
So 10 million DRs would be issued for listing on the NYSE
(Assuming the DRs are listed in the USA).
If 1 safaricom share on the NSE traded at sh35, with the US$/Ksh exchange rate at 1US$-Ksh70.One Safaricom DR would cost US$5 (1 DR is equal to 10 ordinary shares i.e. 35*10=350)

Direct Listing
Safaricom(K) Ltd could also have its primary listing on a foreign stock market e.g. LSE and the secondary listing on the NSE.The alternate could also be done- the primary listing can be on the NSE and the secondary one elsewhere.

SABMiller and Old Mutual Plc. have their primary listings on the LSE.
The drawback of having a primary listing on the LSE is that Safaricom would have to create a UK based PLc company to do this.
I favour listing on the LSE because the listing and compliance costs in the UK are lower than the USA.

I have deliberately over-simplified some explanations and left out some facts/explanations for the sake of clarity and to make the post accessible to people with a non-finacial background.


Udi said...

SOX alone is prohibitive enought to dissuade Safcome from listing on the NYSE. Lets just work on the LSE.

Ssembonge said...

They could also look into JSE. It doesn't have to be UK or USA. Here in the US, various exchanges are fighting over IPO's to list on their bourses.

mmnjug said...

Whoa! Thats a mighty academic explanation! But its the only way to go about it. By listing in the NSE only, Safcom may affect the market because of its sheer size. I wouldnt wis for a repeat of the KENGEN issue where even institutional investors got measly allocations.

click to

bankelele said...

Ther are some compelling reasons to list abroad, but for now it's not the best option. Cross listing and intergration is smoothing out across east africa and the next likely extenstion will be South Africa (JSE).

Not America - Foreign companies like British Airways are withdrawing from the NYSE because the regulations are too much of a burden. The problem of linking up Kenyans in the US with the NSE falls on local stockbrokers, not safaricom.

I still maintain that Safaricom will not be understood by on foreign stock markets who have dozens of communications and mobilee companies to pick from. the fact that safaricom is profitable will be negated by the 'risk premium' that is still put on sub-saharan african companies except oil & mining ones

- and politicaly, the governemnt wants to transfer shares of safaricom to the people who built it - the mwananchi.

pesa tu said...

@UDI:Sarbanes-Oaxley claimed another victim-NASPERS(DSTV pay channel's) parent co. delisted from NASDAQ to London citing the high listing+compliance costs in the USA

@SSembonge: JSE can be easily done but LSe carries more weight +prestige.

@Mmnjug: Safcom listing on the NSE will factor in the liquidity worries.BUT we need the offshore listing to raise our profile as a country and market.

@Bankelele: Thats why i favour LSE.Whether the price rises/falls post IPO isnt the issue the issue is to raise our profile.Plus, open the way for more kenyan companies to do this.
True dat, brokers should do a better job for overseas investors coming to the Kenyan market

mwasjd said...

My vote is with cross listing, but only on the virtue of putting corporate Kenya on the global map. If Safaricom generates iterest, would be good for the rest of the economy in terms of attracting foreign investments (read takeovers).

Must admit though, for having a non-finance background, your use of "oversimplified" is quite interesting...

pesa tu said...

@mwasjd:Thats the same reason why i want thecross-listing.
Oversimplification? yes, i could have said sponsored or unsponsored ADR, Level 1....etc. the know how much better i can present finance/economy based posts.Am more interested in non-practioners reading blog.The pros have all the info they need.

Anonymous said...

A laymans question. How does this take care of the increasing interest that local individuals and companies have shown in owning kenyan stocks. Are there chances that in any floatation of shares, investors in the US will outbid Kenyans or simply buy out Kenyans out of their shares (given the strong dollar currency) thus transfering ownership of Kenyan companies to New York. Of course that also goes with repartriation of profits made by Kenyan consumers to US which in the long run is not for the interest of Kenyans. All these factors and their impact on Kenyan economy need be considered. Well?