[2008-04-23]  CMA talks tough on IPO regulations
The Capital Markets Authority(CMA) has warned that it will examine all share allocations to investors in the Safaricom IPO that closes today to ensure that they are in compliance with the authority’s regulations.

CMA acting chief executive officer, Ms Stella Kilonzo, says the regulator will be looking out for foreign investors who might seek to get price and tax advantages by applying as local investors.

The Safaricom initial public offering (IPO) had shares reserved for different application categories including retail investors, institutional investors, Safaricom employees and dealers, and international investors.

“Unconfirmed information indicates that some investment banks, fund managers and authorised depositories have or intend to apply on behalf of foreign investors through the domestic pool,” says Ms Kilonzo.

“Upon allotment of the shares the authority will examine allocations to clients to confirm compliance with provisions of the CMA Act.”

The warning is contained in a letter sent to investment banks, fund managers and authorised depositories, and copied to the Investment Secretary Esther Koimett and the Nairobi Stock Exchange.

Business Daily has established that foreign clients could pass off as domestic investors for taxation purposes.

This is because locals, foreigners, residents and non-residents all fall in different taxation brackets, with locals generally paying lower tax rates than the rest.

Meanwhile, the CMA and investment bankers have agreed that the firms will not buy shares in their own names on behalf of retail investors.

That means the bankswill not extend allocations to their clients. As QIIs, investment banks are likely to get high allocations for shares than their clients can hope to get through the retail pool if the IPO is oversubscribed.

Ms Kilonzo had warned on Friday last week that section 40 of the Capital Markets Act prohibits investment banks from buying shares in their own name, but for the benefit of their clients through the Qualified Institutional Investors (QII) pool.

Investment banks had argued that this is allowed under the CMA Act, which allows them to enter into contractual portfolio management agreements with their clients.

It has become common for investment bankers to buy shares for some of their rich investors, a practice that increases their chances of getting a higher allocation of shares
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