Safaricom IPO : Stockbrokers Now Raise Key Questions

Safaricom shares are of great interest to investors if only because they have depressed prices at the Nairobi Stock Exchange wiped out a large section of stockbrokers and brought untold financial problems to investors who rushed the Safaricom Initial Public Offer (IPO).

Because of this, we are reproducing, without alteration, the statement that appeared in the local press as paid advertisement by the Kenya Association of Stockbrokers and Investment Banks (KASIB) on the issue. The statement appeared on February 12, 2010.

You will recall that when the idea of selling Safaricom shares was announced by the then Minister for Finance, Mr. Amos Kimunya in 2007, a good number of people were opposed to the sale. First reason, Kenyans were going for general elections and second, critics felt that there wasn't sufficient time for the preparation for the sale.

As you will recall, they were Kenyans who accused those opposed to the sale of trying to deny ordinary Kenyan an opportunity to become as rich. Unfortunately the critics were right and Safaricom shares, have become little more than the pyramid schemes.

Coupled with the anti- small investor policies followed by Chief Executive, Mr. Michael Joseph, it is certain that the big shock for Kenyans is yet to come. What is expected is that KASIB and its members will be raising their voices early enough to be of benefit to investors and Kenyans in general, and not just when one of their own has collapsed.

Position of Capital Markets Authority

It is also important to report here that in its quick reply to the statement, the Capital Markets Authority (CMA) avoided discussing the issue of the Safaricom shares, choosing instead to say the collapsed stockbroker, Ngenye Kariuki & Company Limited (now under statutory management) had liquidity problems dated several years. The stockbroker could not pay its debts and was insolvent up to the tune of Shs 227 million, according to the CMA.

The CEO and founder, Ngenye Kariuki says that the company was renegotiating its overdraft facilities with K-Rep Bank when it was placed under statutory management.

Editor,

KASIB'S POSITION ON RECENT DEVELOPMENTS IN THE CAPITAL MARKETS INDUSTRY

The Kenya Association of Stockbrokers and Investment Banks (KASIB) is a stakeholder body that primarily represents the interests of market intermediaries who are members of the Nairobi Stock Exchange and are key stakeholders of the Local Capital Markets :

KASIB has been aware of some of the challenges being faced by the firm of Ngenye Kariuki & Company Ltd. and the reasons that may have occasioned them. Further we have been able to clarify the stated reasons for the action taken by the Capital Markets Authority and the extent to which the firm may or may not have been able to meet its continuing and primary obligations to its clients :

Following the Safaricom initial public offer (IPO), many market intermediaries and investors alike were left with numerous unresolved problems as a result of the manner in which the IPO was processed. Previous attempts at reconciling accounts between stockbrokers/investment banks and the lead receiving bank - Citibank - have left a lot of issues still unresolved. The bone of contention has been that vital information that: would help to clear the reconciliation is with the receiving bank who received both raw data and soft copies: of the applicants' forms and payments. It is for this reason that millions of shillings are still held at Citibank in the Safaricom IPO account.

To complete the full reconciliation of this IPO, KASIB has severally requested a complete and independent forensic audit of the entire IPO process but this request was not granted. KASIB has established that the: insurmountable cash flow problems to stockbrokers and investment banks are directly related to the post IPO issues and the substantial amount still being held by Citibank. The effect of this is evident in the position we find faced by one of our members, Ngenye Kariuki & Company, which is facing statutory management placed on it by CMA.

Outstanding Issues

There exist many outstanding issues related to this IPO that KASIB strongly feels that the public needs to know. The public deserves a clear understanding of the entire process from the beginning to the end, the players involved and the issues encountered. This matter according to the Kenya Association of Stockbrokers and Investment Banks needs to be put to rest once and for all.

We would like to alert and bring to the attention of investors that there were many pertinent issues that were encountered during the Safaricom IPO. These included :

1. Some investors were not allocated shares in the IPO yet they applied.
2. Some persons were not allocated shares in the IPO yet they got refunds.
3. Some shares were allocated to wrong CDS accounts.
4. Refund cheques were issued in wrong names.
5. Share certificates were issued in wrong names.
6. There were many duplicated allocations resulting in double refunds and allotments.
7. There were many fraudulent applications and subsequent fraudulent refund demands.
8. Some applications were not paid for by applicants and yet were allocated shares.
9. There were many cases of fraudulent clearing of Safaricom refund cheques.
10. Not all selling agents (stockbrokers and investment banks) received cash back for unsuccessful applications.
11. General errors on material information about investor applications.

It is the considered opinion of the stockbrokers that everyone will be satisfied IF - and only IF :

1. Fairness is achieved through full revelations of transactions that transpired.
2. All players learn so that mistakes are not repeated. The stockbrokers, the banks, the CMA, the government and the investing public.
3. Confidence is injected back into the market.
4. Blame is properly apportioned.
5. Those found culpable are brought to book. Even the 'investors' who received double and triple refunds need know that at some point the law will catch up with them.

Conclusion

KASIB would like to assure the Kenyan public that the safety of their investments is our primary concern, members of KASIB are concerned about the effects the IPO had on investors, and now on stockbrokers, investment banks and other stakeholders. Many stockbrokers have been forced to go back into their pockets make refunds and/or payments to investors who for one reason or another similarly suffered from the poorly executed IPO. This has adversely affected their liquidity positions.

KASIB would like to appeal to the Authority to come out strongly and rescue the deteriorating situation. They should exercise their mandate and discretion to ensure they not only to carry out the letter of the law but to do justice to all concerned.

KASIB therefore reiterates that an independent forensic audit of all stakeholders that were involved in Safaricom IPO be conducted urgently and immediately.

We would also like to reassure investors that shares and bonds of investors are always held in safe custody by the Central Depository and Settlement Corporation (CDSC) and NOT by the respective stockbrokers or investment banks. Investors should thus not panic unnecessarily whenever a stockbroker is placed under statutory management.

JANE NJERU

CHIEF EXECUTIVE, KASIB, NAIROBI.

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