Don’t waste time with multiple applications in Safaricom IPO

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

13 April 2008

Michael Ogutu will not let this Safaricom dog lie. He wants to apply for the shares but he is discouraged by the expected oversubscription. He writes, “I want to make many applications using the names of my relatives so that if each is allocated a few shares, my total will be a reasonable amount. Would that be illegal?”

No; it is not illegal, but it is a waste of time and effort to make multiple applications. Even if you apply in ten different names, you still get the same number of shares regardless of the level of oversubscription. The reason is that the allocation will be done on a “pro-rata” basis, that is, the more an applicant has asked for, the more he/she will get. (Read paragraph 14 on page 27 of the prospectus)

Let me illustrate: suppose the total applications are double the number of share available and that Michael wants to apply for 20,000 shares (worth Sh100,000). If he uses his strategy and fills 10 forms in different names each asking for 2,000 shares, how many will he get?

The distribution will be done as follows: Since there are twice as many applications as the number of shares available, then each applicant will be allocated a half of the amount they applied for. Thus each of Michael’s relatives will be given 1,000 shares making a total of 10,000.

If on the other hand, he made one application for the 20,000 shares desired, he will also be allocated a half of this number. That is, 10,000 shares! The two strategies yield the same result! The first one (multiple applications) is not only cumbersome (Michael has to make numerous journeys to get the forms signed) but also unnecessarily clogs the whole process.

On her part, Janet Nyongesa says she still doesn’t understand why I insist that Mobitelea does not own shares in Safaricom “yet there are many reports indicating that they were given 5 percent in mysterious circumstances”.

Well Janet, did you know that you also own 800 shares in the company (even without the IPO)? This is how: Safaricom is divided into 40 billion shares out of which the government own 60 percent or 24 billion. Since all the 30 million or so Kenyans are stakeholders in the institution known as “The Government of Kenya”, it means that we each have a beneficial interest equal to about 800 shares in the company (40 billion divided by 30 million).

But as individuals, we have no say in the company; we are neither invited to shareholders’ meetings nor consulted when business decisions are made. Even our elected representative in (the Minister for Finance) is not a member of the board of directors! As a minority shareholder in the company that owns 40 percent of Safaricom, this is the same situation that Mobitelea is in.