The percentage of a percent is mathematical tongue twister

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

06 April 2008

Perhaps because of its size or the fact that the company touches almost every Kenyan’s life, the Safaricon IPO has generated a lot of interest and many people are going through the 225-papectus with a fine-tooth comb!

First there was the issue of some unheard-of entity owning 5 percent of Safaricom. But as explained in this column a few months ago, Mobitelea does not own and has never owned any shares in the Safaricom – not even one! Then there came the question about the valuation of shares being offered in the IPO, a matter that I discussed last week.

Now a reader has questioned the total number of shares that Safaricom is comprised of. He argues that since the government currently owns 60 percent of the company and it is offering “25 percent of its shareholding in the IPO, then only 15 percent of Safaricom is being sold”.

“If the 15 percent is equivalent to 10 billion shares then the total number should be 66.67 billion. Kenyans have been conned”, he concludes.

Well, not quite true. The government is NOT offering 25 percent of “its shareholding” in Safaricom. It is offering 25 percent of the company. Thus there are 40 billion shares out of which the Treasury is currently holding on to 24 billion. The confusion arose because of the way some media houses have been reporting this matter.

This brings to mind another question that I was asked a few months ago. If inflation increases from 10 percent to 15 percent, is it right to say that it has gone up by 5 percent? Clearly, that would be wrong. The word “percent” is derived from the phrase “per hundred”. This explains why our shilling, for example is divided into 100 cents.

Thus if inflation increased by 5 percent from 10 percent, then the result would be 10.5 percent (since 5 percent of 10 is 0.5). The correct phrase would be “increased by 5 percentage points” But since that is quite a mouthful, it is easier to simply say that it rose from 10 percent to 15 percent. After all, the percentage of a percent a mathematical tongue twister!

Nonetheless, the following statement appears on page 18 of the IPO prospectus: “…if the Domestic Pool is over-subscribed by more than 200 percent, [it] may be increased by up to a total of 15% of the Offer Shares…”

Since there are 6.5 billion shares reserved for the domestic pool, does “200 percent oversubscription” mean when 13 billion shares or 19.5 billion shares are applied for? This is the sort of confusion that always arises when percentages above 100 are quoted.

In this instance, the meaning (according to the wording) is if applications exceed 19.5 billion shares. That is how I would have stated it if I was writing the document. But whether this was the intended meaning is a different matter altogether.