March 30, 2008

Another fat cheque for Mobitelea

Story by NATION Team

Safaricom made 46 per cent of what all banks operating in Kenya realised the whole of last year — in just nine months. But when the 12-month results are ready, it may turn out that the mobile telephony firm made an equivalent of 60 per cent of the total banking industry profit.

Even if they do not manage that incredible feat, they have so far made more money than Barclays, Standard Chartered, and Co-operative Bank together. Last year was the best for all banks, which made Sh33 billion, but appears to have been better for the seven-year-old teleco.

Safaricom financial year ends on March 31 while that of banks concludes on December 31.

As brokers in Kampala reported unprecedented crowds seeking a piece of the 65 per cent of the privatisation issue reserved for East Africans, company prospectus revealed pre-tax profit had hit Sh15.7 billion in the nine months.

If, by any chance, the tempo was maintained in the first three months, where immobilised callers are known to have made frantic calls, the company would break its Sh17 billion record by making Sh20 billion.

And if that comes to pass, the telephony firm would have made the same money as Barclays, Standard Chartered, KCB, National, and Co-operative Bank, combined!

“The net income increased due to the increase in profit before tax while the effective tax rate remained at 30.5 per cent,” the prospectus said of the Sh10.9 billion net profit.

Apparently, banks have handed over their mantle of making ‘‘obscene’’ profits to the New Economy giant. Those rushing to buy the firm may be pleased to know that in 2007, the firm paid out dividends of Sh4 billion. What may be less pleasant is that their shadowy partner-to-be, the Guernsey-registered Mobitelea, was entitled to 5 per cent of this, adding up to Sh200 million!

The profit revelation came as Sunday Nation went out of its way to verify how the Sh200 billion Safaricom valuation, claimed by some vocal politicos to be undervalued, was arrived at.

The Initial Public Offering (IPO) principals say the value together with that of Sh5 per share was arrived at after a careful analysis of several factors in line with international privatisation standards. This, the highly placed sources who cannot be named as they are not allowed to talk to the Press said, was done by a big team of highly skilled experts.

According to them, the value of the shares was derived after a careful analysis of the fundamentals of Safaricom as a company and comparing it with other telecommunication companies both within and outside Africa.

They said most markets have gone through the privatisation process of similar companies and this enabled the professionals to find the right price for the Safaricom offer at Sh5 per share. The minimum share application is 2,000 shares.

“What Kenyans need to understand is that the telecommunications business model, which characterises all telecommunication companies in the world including Safaricom, operates under a tight range,” said the source.

The team of more than 50 professionals from diverse backgrounds, age and gender pored over tonnes of documents and scoured hundreds of web sites of various telecommunication companies operating in all continents of the world before setting the price.

Among the companies that were considered were Orascom and Mobinil of Egypt, Celtel Kenya’s parent company, Zain, MTN of South Africa and MTN of Nigeria with the last one exhibiting the closest features to those of Safaricom.

“While all these companies had the same characteristics as Safaricom in that they are market leaders in fast growing telecommunication markets, MTN Nigeria was the closest to Safaricom in its growth profile,” said the source.

By analysing information on the financial performance of the various companies such as profit and loss accounts, share prices and earnings per share, the team was able to set the offering price.

The team, the source added, had to analyse the current value of Safaricom in its totality to project its future cash flow prospects before calculating its growth potential so that they can arrive at a price that can assure potential (Safaricom) investors of a fair rate of return on their investments in the future.

In the run-up to the launch of the IPO by President Kibaki in Nairobi last Friday, the Orange Democratic Movement (ODM) had questioned the Sh5 per share pricing for the 10 billion shares on offer — which gives Safaricom a market value of Sh200 billion — arguing that the company is too profitable to have its shares so lowly priced. Also, ODM has raised questions about Mobitelea over reports it owned part of Safaricom alongside the Kenyan unit of Britain’s Vodafone.

But the source said the identity of Mobitelea’s owners was irrelevant to the IPO, since they were not immediate shareholders of Safaricom.

Under the offer, which opened on Friday and closes on April 23, local investors have been allocated 65 per cent of the shares on sale, with the rest going to foreigners.

For the first time, citizens of the East African Community member countries of Uganda, Tanzania, Rwanda and Burundi are being treated as local investors.

And if the 65 per cent share allocation is oversubscribed by more than 200 per cent, however, up to 15 per cent of the 35 per cent reserved for foreigners would revert to locals. Share allocations will be announced on May 30.

Foreign investors, who are expected to start applying for the shares under the book-building scheme, would pay more than the local investors.

Lead joint transaction advisor Morgan & Stanley & Co International plc managing director in charge of capital markets in the Middle East and Africa John Porter said the foreign investors price range would be up to 20 per cent, if the European market mark-up is taken into account.

Government officials and transaction advisors are set to embark on a series of pre-marketing road shows on April 9 that will take them to South Africa, London, continental Europe, the Middle East and South Africa in a bid to enlighten as many institutional investors as possible about the share offer.

The government, which is selling 25 per cent of its 60 per cent stake in Safaricom, aims to raise at least Sh50 billion from what is billed as the largest IPO in East Africa whose shares will premier at the Nairobi Stock Exchange (NSE) on June 9 this year.

Reported by MUNA WAHOME and JUSTUS ONDARI