SAFARICOM IN SKYHIGH GROWTH IN KENYA
Low denomination scratch cards and growing subscriber base have boosted Safaricom's income levels considerably. East Africa's largest mobile phone provider, Safaricom, has made a record pre-tax profit of KES 12.2bn (US$171.5m), the highest ever in the region. Most of the company's profits were derived from airtime sales, partly occasioned by the introduction of low denomination scratch cards going for KES 50 (US70 cents) and KES 100 (US1.40).
The profits were also attributed to the growing subscriber base, which has now hit 4 million subscribers in less than five years. Following this impressive performance by Safaricom, which is still unlisted, the Chairman of the Nairobi Stock Exchange (NSE) Jimnah Mbaru and Finance minister Amos Kimunya have called for the floatation of the company's shares. And Information and Communications minister Mutahi kagwe termed the profit a fantastic job. "Safaricom has demolished the myth that telecommunications is a dormant sector", noted Kagwe. Safaricom is 60 per cent owned by the government through Telkom Kenya while Vodafone Plc, the giant British cellular phone company, owns 40 per cent. Last year, the two were embroiled in a shareholder battle when Vodaphone sought to control the company by placing an offer of US$100 million for an additional 11 per cent stake.
The Kenya government is yet to give a nod. Should the government accept the offer, it would be the country's largest privatisation deal, besides being the single biggest inflow of foreign direct investment into the country in recent years. Vodafone would also confirm Safaricom's enterprise value at $1bn. Besides the amount offered, Vodafone has also given an undertaking to support a listing on the NSE of the 49 per cent shares that would remain in the hands of the government. A new shareholders' agreement is also to be signed between the two parties to reflect the changed shareholding structure. Part of the proceeds of the deal would be used to clear debts that Telkom Kenya owes Safaricom in respect of an interconnect agreement between the parties.
Significantly, the takeover would also herald Telkom's graduation to the league of companies with access to international capital markets. Besides refinancing its debt portfolios, it would be able to declare dividends to all shareholders. The Initial Public Offering [IPO], anticipated to be the biggest on the NSE, would also enable ordinary citizens to own shares in the most profitable company.
Not to be left out are investment bankers and stock brokers, who would clinch deals for advisory services. Analysts believe that the large size of the transaction may require shares to be sold throughout the region, making it the first East African IPO. With a subscriber base of 4 million, the acquisition would definitely give Safaricom a competitive edge over its rivals, especially given that the roll-out of the third mobile phone provider, Econet, is yet to take off.