Safaricom IPO Confirmed for Next Week

Mergers, Acquisitions and Financial Results

The floatation of Kenya's Safaricom has resumed following the calming down of the political turmoil over the past few months. The floatation of a 25% stake held by the government will now occur on March 28th, with share trading starting on the Nairobi stock exchange in June. The government has reserved 35% of the issue for foreign investors.

The sale will be set at KSh5 a share for Kenyan investors - although that then forms the lower limit for a block sale to foreign investors. The government aims to raise KSh50 billion (US$790 million) from the sale, which values the whole company at some US$3.16 billion.

Safaricom has however been subject to some controversy over the past year over who its current shareholders are. What is not in question is that the Kenyan government owns 60% of the company - it is the remaining 40%, nominally attributed to Vodafone which contains the mystery.

As we understand it, when Vodafone took its 40% stake in Safaricom back in 2000 - via a local subsidiary, Vodafone Kenya Ltd (VKL) - the company granted an option to a company known as Mobitelea Ventures Ltd. for 25% of VKL. Mobitelea exercised the option the following year, giving the company an effective 10% stake in Safaricom, and reducing Vodafone's effective stake to 30%.

It then seems that Vodafone brought back half of Mobitelea's stake at the beginning of 2003, giving Mobitelea an effective 5% stake in the company - and Vodafone 35% of Safaricom. Mobitelea is registered in the offshore tax haven of Guernsey. The mystery is - who owns Mobitelea and why was the company granted the option to buy a stake in Vodafone Kenya? (The answer most commonly given by Nairobi gossips is the son of a well-known politician.)

Kenya's investment watchdog was trying last year to find out who is behind Mobitelea, and the UK's serious fraud office also sent its own people to Kenya last year to investigate the issue. Vodafone wont comment due to an apparent confidentiality agreement and the investment watchdog is said to be having difficulty identifying the beneficiary owner of Mobitelea.

The matter has been further confused by the apparent disappearance of paperwork from the offices of the Registrar of Companies, which could verify the nominated directors and shareholdings in Safaricom and Vodafone Kenya Ltd.

Vodafone PLC claims a 35% "economic interest" in Safaricom, though its 87.5% stake in Vodafone Kenya - which in turn owns 40% of Safaricom. It's the 12.5% stake in Vodafone Kenya, owned by Mobitelea which is the mystery.

Tracing the percentage shareholding through Vodafone's own financial statements simply shows blanks on the key years. In their results for the year ending March 2001, Vodafone said "The Group sold its investment in Celtel (Uganda) for a profit during the period and acquired a 40% stake in Safaricom in Kenya."

However, reading the release issued by Vodafone on the 30th May 2000, while it also confirms the 40% stake - states quite explicitly that Vodafone Kenya Ltd is a wholly owned subsidiary, and no mention is made of the apparent call option issued to Mobitelea. From a purely technical perspective, it should be noted that it was Vodafone AirTouch which set up the Kenyan subsidiary.

In 2002, the Vodafone annual reports made no comment about their Kenyan investments. However, in the annual report for the year ended March 2003 - Vodafone noted that "On 10 January 2003, under an agreement with Mobitelea Ventures Limited, the Group completed the purchase of an additional 5% equity stake in the Group's Kenyan associated undertaking Safaricom for approximately $10 million, increasing the Group's effective interest to 35%."

Since then, there have been no comments about the percentage shareholding in Safaricom - until this year, when the annual results for the year ended March 2006 again confirmed the 35% shareholding.

Whomever it is that sold their 5% stake in Vodafone Kenya in 2003, presumably put a valuation of US$10 million on their remaining holding. Based on the IPO details, that stake is now worth at least US$158 million. Someone has done well - we just don't know who he or she is.

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