Additional Reporting from The Financial Standard edited by Branded.
It is emerging that many local and international investors were cheated into buying shares in the recently concluded East Africa's largest ever Initial Public offering (Safaricom IPO). The company recently issued a revised Safaricom prospectus raising eyebrows as it borders on reneging on a sworn affidavit that's binding. This comes in the wake of yet another negative issue that the Kenyan regulators failed to clarify regarding a certain briefcase and shadowy firm, Mobitelea that owns 5% of the company Safaricom. The new developments paints a rather negative image that seems to suggest "Deep rooted corruption and underhand dealings only concerned with offloading some 10 Billion shares into the market to raise Ksh 50 billion" without regard to the public. It appears that investments into the company by the public may not be safe after all given the attitude displayed by the regulators. Investors are being taken on a rough ride.
As the curtain falls on Safaricom initial public offering (IPO), there has emerged some glaring regulatory weakness that put to test the credibility of the Capital Markets Authority (CMA).
Market information filtering through indicates that the sponsors of Kenya’s jewel, the Government, had quietly sneaked into the market another prospectus without caring to inform thousands of investors that it has withdrawn the earlier prospectus.
And to make matters worse, the new document that details all about the giant mobile operator, contains new information, distinctly different from the one that was approved by regulatory authorities for its Initial Public Offer (IPO). Though the CMA officials disclosed to the Financial Standard that the changes were minor and a formality that was meant to meet international accounting standards practices, sceptics, however, contend that the action was in contravention of the law and puts further dents into claims the process was above board.
It has also emerged that the CMA had approved the initial prospectus dated March 14, which was presented to investors despite the fact that the financial statements contained therein were neither approved by Safaricom’s directors nor the independent auditors, PriceWaterhouseCoopers (PWC).
Also buried within the deck of the revised document’s financial reports may be a kernel of truth about the understandable rush by both the players in the industry and the Government to bring the IPO to the market regardless of whether their action contravened the same laws strive to uphold.
Interestingly, there seems to be a conspiracy of silence within the capital markets, with players, including the Nairobi Stock Exchange (NSE), either keeping quiet or ignoring the issue altogether.
The anomalies have, however, been corrected in the revised prospectus, dated March 28, 2008. The revised document contains the PWC seal of approval and the signatures of Mr Nicholas Nganga and Ms Nancy Macharia, directors who approved the financial statements on behalf of Safaricom.
"The interim financial statements on pages 163 to 185 were approved for issue by the board of directors on March 4, 2008 and signed on its behalf by…" reads a statement on page 165 of the revised prospectus.
The second prospectus contains what experts refer to as "material information changes" or alterations to the original information given, which they insist must get CMA approval before being released to the public.
The wording used in the initial prospectus also varies with those used to introduce financial statements contained in the revised document. While the initial document refers to "financial statements of Safaricom Ltd, the revised version calls it "the condensed interim financial statements."
The rush to bring the IPO to the market has raised several claims, including unproven claims that the Government could have been rushing to finish the IPO within a set deadline for reasons not known to the public.
The anomaly and its potential to poke further holes into the transparency of the Safaricom offer are great. Observers say it might also portray the issue in a decidedly different light.
But the CMA maintains that approval of the initial prospectus was clean and that no laws were broken regardless of the fact that a revised prospectus was issued. It’s also not clear whether it went through the normal vetting process as required by accounting rules.
"All the information was verified by the reporting accountants — Deloitte and Touche —, and forwarded to PWC, which is the independent auditor," says a highly placed source from the CMA who did not want to be named.
Under these circumstances, the external auditor’s brief includes examining whether the financial statements are in conformity to International Financial Reporting Standards (IFRS).
According to this source, the reporting accountants (Deloitte and Touche) verified that PWC complied with the IFRS, then presented a draft financial report, which was used in the initial prospectus.
"If you look at both documents, you’ll realise that the figures have not been altered. The information is about the same and we (the CMA) issued a public notice notifying the public of the addendum (additional information) through the press," he says.
The officer adds that the CMA directed the issuer (Safaricom) to issue notices of addendum equal in number to the number of prospectuses in circulation. FS could not verify whether there was any compliance to the requirement because both the investors and experts contacted said they were not aware.
A highly placed source within the brokerage fraternity, however, says that the initial document did not comply with International Financial Reporting Standards because it lacked what he calls footnotes or notes to the accounts.
"This too has been corrected in the revised document. I believe a lot of material information was overlooked in the initial prospectus and the second one was produced to correct the anomaly," says the broker.
"Availing a different prospectus other than the original one is like reneging on a sworn affidavit and adding extra information to an agreement that is already binding. It is like reversing some understandings the company had with potential investors," he says.
Any company offering shares to the public in Kenya is required by law to issue a prospectus. The prospectus contains information that investors need to know in order to make informed investment decision about the issuer (in this case Safaricom) and its shares. It also gives an indication of the company’s area of business, the key investment risks, how the funds raised would be used, its operating track record and business prospects.
Risks that must be disclosed often include lack of business operating history, past problems with the company or members of its management and adverse economic conditions in the industry in which the company is operating. Others details include competitive disadvantages, the regulatory structure and dangers in the event of non-compliance, lack of assurance that there will be a market and dependence upon key personnel.
The company must also describe in the prospectus its business, properties and competition. It also needs to include certified financial statements audited by an independent certified public accountant.
Despite the differences in material information in the financial statements in the two prospectuses, a number of details have remained intact.
For example, information on principal players, including lead transaction advisor Dyer and Blair and the fact that it bid just 0.05 cents for the job, is still intact. The dreaded word Mobitelea still appears with the rider that it owns five per cent of Safaricom through (12.5 per cent shares in Vodafone (K) Limited’s 40 per cent stake. It is mentioned as a risk factor in the context of a Public Accounts Committees report.
Although the CMA headed by Ms Stella Kilonzo as the acting CEO has insisted that the information is in the public domain, most of the investors we talked to, including industry insiders seemed unaware of the revised prospectus.
The CMA has so far played its role of policing the country’s capital markets with, to a great extent, some level of sluggishness. Two stockbrokers – Francis Thuo and Partners and Nyaga Stockbrokers collapsed under its watch, amid allegations of illegal trading in investors’ shares.
The reluctance by the country’s premier regulatory authority to strictly enforce the regulations in the capital markets has been cited severally with different players calling a review of the laws governing the capital markets.
For example, the CMA, on behalf of the investing public, ought to have questioned a number of things, key among them why PWC did not authenticate the initial prospectus and why the mobile company’s directors did not sign the document.
Our source pointed to a number of other issues he thought should have been dealt with before the proposed listing. He says that Safaricom could have presented an incomplete prospectus in order to comply with CMA, while the later did not do its job well. In order to comply with the requirements of the CMA, the Government, who are the issue sponsors, submitted the initial prospectus. "It’s an abdication of responsibility for the CMA to turn a blind eye on what is clearly a blatant breach of the rules. It cannot abdicate its supervisory role to any arm of the Government," he says.
He says all these demonstrate the extent of CMA’s slackness and the need for "regulatory authorities to take their responsibilities with "utmost seriousness."
But despite the emerging fears, one positive development from this unlawful practice is the fact that if addressed, the anomalies will act as deterrence for such practices in any future IPOs.
As Safaricom prepares to release the final list of how the allocations were done, the company will also seek to put behind it the last few months of persistent questions about the great rush to take the IPO to the market and hopefully, answer the questions.
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Wednesday, April 30, 2008
Labels: Safaricom IPO
Wednesday, April 23, 2008
Despite the much publicized and publicly criticized "cling to" guns and religion comments, Americans are more likely to think Hillary Clinton "looks down on the average American" than Barack Obama, according to a new poll.
The Gallup poll indicated that 32 percent of respondents think Clinton looks down on average Americans, compared to 26 percent thinking the same thing of Obama.
GOP presumptive John McCain was only seen as looking down on average American's by 22 percent of those answering the poll.
The numbers were similar to those saying which candidates respect average Americans (McCain, 71 percent; Obama, 69 percent; Clinton, 63 percent).
Among Democrats or those leaning Democrat, Obama had the best number, 15 percent, compared to Clinton's 18 percent and McCain's 30 percent. But among Republicans or those leaning Republican, McCain led by a wide margin, with 10 percent thinking of him as elitist, compared to 47 percent thinking that of Obama and 54 percent thinking that of Clinton.
In a separate poll, Obama has regained the 10 percent lead he had a week ago over Clinton among voters nationally (50-40 percent). Clinton had briefly closed the gap (and taken one point lead) after the Philly debate.
Both Democrats remain in what are essentially dead heats with McCain, according to the latest polling numbers.
Thursday, April 17, 2008
Images of rioters in Egypt, Senegal, Cameroon, Burkina Faso and Mozambique (among others) clashing with police in protest against soaring food prices and Kenya’s abandoned internally displaced people all tell a similar story: Africa needs to retool its thinking.
All other challenges facing the continent today should have long been dealt with. Robert Mugabe and his cronies should have conceded defeat two weeks ago, and let Zimbabwe rediscover itself as a country. Kenya’s Mwai Kibaki and Raila Odinga should have reached a political agreement over power sharing last year. What we see today is a smokescreen that disguises Africa’s real disease: lack of leadership.
The UN reports that Africa will not be able achieve the millennium development goal (MDG) of overcoming hunger and malnutrition. A continent that is still grappling with the ‘food level’ fifty years down the line cannot be competitive in the global arena.
In the recently concluded global finance ministers’ meeting, it was declared that food crisis poses a greater threat to economic and political stability than the crunch in the financial markets. The World Bank estimates that 33 countries around the world face potential social unrest linked to the surging food and energy prices. Moreover, the World Food Programme is appealing for at least $500 million of additional food supplies to meet current emergency needs to offset the soaring cost of basic food in Africa and other parts of the world where riots threaten political and economic stability.
“It is a crime against humanity” says Dominique Strauss-Kahn, managing director of the International Monetary Fund, to focus on fuel without having solved the food problem. Africa has been a victim of the war (real or imagined) against the emergence of China as a super power and the protest against US foreign policies in the oil rich Middle East. This warfare has seen the increase in fuel prices. The 2008 Beijing Olympics torch protests against China’s policies in Tibet and Darfur shows just how determined the US is in reversing China’s progress. The tumbling financial markets have also played a big role in pushing up global food prices affecting many developing countries. Jeffrey Sachs, director of Columbia University's Earth Institute observes that “… rising world energy prices have made food production more costly and have created incentives for farmers to switch from food to fuel production.”
The realities of demography, changing diets, energy prices and climate change suggest that high and volatile food prices will be with us for years to come. “Since 2005, the prices of staples have jumped 80 percent. Last month, the real price of rice hit a 19-year high; the real price of wheat rose to a 28-year high and almost twice the average price of the last 25 years.” says World Bank president, Robert Zoelick .
Africa needs to focus on increasing its food production in the coming few years to avert total chaos as a result of civil strife due to food shortage. Africa’s food crisis is however artificial. Individual countries must open up their borders to each other to facilitate movement of food. Africans also ought to shun the traditional mindset that labels certain foodstuffs like maize as food while considering rice or potatoes as non-food.
Monday, April 14, 2008
NAIROBI, Apr 13, 2008 (Source: Trading Markets.com) -- -- Raila Odinga, the 63-year-old newly appointed Kenyan prime minister, is described by both friends and foes as the engine that drives politics in Kenya.
Odinga was born in January 1945, in Maseno, Nyanza Province of Kenya, the second son of nine children of the late Jaramogi Oginga Odinga, who was Kenya's vice-president and doyen of opposition, and Mama Mary Emma Odinga.
Odinga was, until November 2005, minister of roads and public works and housing.
Odinga contested for the 2007 presidency and came "second" to the incumbent Mwai Kibaki, but Odinga refused to accept the result, accusing Kibabi of winning the race by rigging.
He is commonly called by his first name, "Raila," due to an interesting coincidence: he was an MP together with his father in the Kenyan parliament for a while, and is currently an MP together with his brother, Oburu Odinga, in the same parliament.
Odinga was educated in former East Germany and spent six years in solitary confinement for his alleged involvement in a 1982 coup that failed to topple the president of the day, Daniel arap Moi.
Later, Odinga was rehabilitated. Enriched by his family's molasses business, he helped to defeat Moi in the presidential election of 2002, this time by throwing his support behind a coalition led by Mwai Kibaki.
As a prominent and successful businessman, who runs the engineering firm Spectra International, he is experienced in global corporate practices and says he intends to inject this knowledge into his administration to reconstruct Kenya's economy.
Odinga has taught in Kenyan universities and held various positions both in the government and private sector.
Odinga has also attended courses at the British Standards Institution in London, Washington D.C., and the University of Denver, Colorado. In addition, he authored several publications both technical and political.
He grew up within the tradition of struggle, which has consistently stood for the complete liberation of the Kenyan people -- where freedom would form the cornerstone of Kenyan society.
In the dark days of political repression in Kenya, Odinga was detained three times without trial for a total period of eight years. In 1991 at the height of the struggle for democratic change, he had to briefly seek asylum in Norway in order to escape a fourth detention.
After the re-introduction of multi-party politics, Odinga vied for the Lang'ata seat, a multi-ethnic constituency within Nairobi city and won with a wide majority on a FORD-Kenya ticket.
Following disagreements within the leadership of the party, in December 1996, he resigned from both FORD-Kenya and parliament, and joined the National Development Party of Kenya (NDP). He contested the ensuing by-election in his former constituency on an NDP ticket in March 1997, and retained the seat.
Raila was elected leader of the NDP, and was the party's presidential candidate in the 1997 general election, coming third in a field of 15 candidates.
Thursday, April 3, 2008
HOST Africa is the latest magazine offering a new approach to the hospitality industry news, information and analysis in East Africa. The magazine set to go out in June is already testing its new website VIEW HERE
It is published by All Times Media Kenya, and will be distributed exclusively via suscription to Top industry decision makers in the hospitality industry (Airlines, Hotels, Restaurants, Industry Suppliers, Business Travellers). Copies of the magazine will also retail at major newstands throughout East Africa and parts of South Africa, the US and Europe. you can suscribe to recieve exclusive copies of HOST Africa magazine through this blog CLICK HERE
Tuesday, April 1, 2008
From The independent
The Serious Fraud Office (SFO) last night ruled out any further investigation into allegations of corruption involving a Kenyan mobile phone company of which Vodafone holds a 40 per cent stake.
The decision came as thousands of Kenyans lined up to buy shares in the public flotation of the company, Safaricom, after opposition calls to delay the biggest ever state selling of its sort in east Africa were defied.
The Kenyan government owns 60 per cent of Safaricom, the most profitable firm in the region. The other 40 per cent is owned by Vodafone Kenya – which itself is 87.5 per cent owned by the British-based mobile giant, with the remaining 12.5 per cent owned by a mysterious Guernsey-registered firm called Mobitelea.
The owners of Mobitelea remain unknown despite enquiries by Kenya's investment watchdog and the SFO, which said it had sent representatives to Kenya last year to meet with the country's own watchdog, and "examine the matter".
Last night however, the SFO said that it was refusing to investigate the company for reasons of "resources". "[The SFO director Robert Wardle] has the task of allocating resources, taking into account the prospects of success against the demands on resources. It is with some difficulty that he has decided that the SFO will not adopt this enquiry for investigation."
The decision comes despite a number of reports relating to the anonymity of Mobitelea, including claims of a "secret stake" in Safaricom allegedly linked to the family of the reviled former president of Kenya, Daniel arap Moi.
Vodafone has remained tight-lipped about the identity of those behind the off-shore firm. A spokesman said last March: "Mobitelea has never had representation on the board of Vodafone Kenya or the board of Safaricom. We have received guarantees from Mobitelea that no prohibited parties have benefited from this transaction".
Last night, Bobby Leach, the media director of Vodafone UK, emphatically denied any direct link between Mobitelea and Safaricom. "Mobitelea does not own shares in Safaricom," he told The Independent. Asked specifically about the arap Moi family, Mr Leach said he was obliged under confidentiality agreements not to comment on the ownership of Mobitelea.
The state is selling off 10 billion shares, which represents a quarter of the company's equity, and expects to raise 50bn shillings (£390m).
The Kenyan President, Mwai Kibaki, launched the sale yesterday, saying: "I ... wish to take this opportunity to invite all Kenyans ... to take advantage of this investment opportunity and take part in the success story we have created together."
Earlier, the opposition party, the Orange Democratic Movement, had called for a delay in the sale until Mobitelea's ownership was disclosed.
Labels: Safaricom IPO