[2008-07-31]  Joy and tears in Safaricom IPO refunds
The Safaricom IPO, the biggest ever public offer in Sub-Saharan Africa, continues to jolt local financial markets 40 days after the 10 billion shares were listed on the Nairobi Stock Exchange (NSE).
The equity, money and the bond markets have all plummeted as investors grapple with a cash crisis fuelled by refunds still locked up by a consortium of banks. Information filtering through indicate that receiving banks are sitting pretty on an estimated Sh60 billion in unpaid refunds, an amount presumed to be generating over Sh300 million every month in interest earnings at an average overnight lending rate of 6.5 per cent.
However, it is still unclear who is benefiting from this unusual windfall that has sparked off behind-the-scenes scheming, largely blamed on delayed refunds.
Trapped in the web of these unfolding financial intrigues are the Treasury, Central Bank, Capital Markets Authority (CMA), Citibank and the lead transaction advisers — Dyer & Blair Investment Bank.
Technically, the law requires interest accruing from the proceeds of the IPO to be deposited into CMA’s Investor Compensation Fund — a kitty that was set up to compensate investors who suffer losses as a result of the failure of a licensed broker or dealer to meet contractual obligations. But this rule is limited to an earning period between the time the close of allocation and when refunds are made.
However, in the case of Safaricom IPO, the refund exercise continues to drag long after the June 9 deadline and it is not clear whether interest earnings during this period will be channelled to the compensation kitty.
The value of the Safaricom IPO applications, which closed on April 23, stood at Sh286 billion and questions now linger within the investing fraternity on who is pocketing the hefty interest accruing from the investment.
The latest crisis is brought to the open by a memo drafted by Dyer & Blair to all the IPO’s selling agents and copied to Citibank informing them that no cash would be released unless batch reconciliation of application to the bank is completed.
Investors’ Agony
The new condition spells doom to completion of the refund exercise, which has seen investors agonise for almost two months to get their dues, mostly acquired through loans or liquidation of their assets.
Dyer & Blair Investment Bank issued a one-day notice to all brokers, investment banks and agents instructing them to comply with the new conditions before a part payment of their placing commission could be dispatched.
The memo dated July 24 requires the parties involved to furnish the bank (Citibank), Image Registrars and the Central Depository Corporation (CDSC) with compensation (indemnity) for providing the data and feedback files required to complete the verification.
However, the new requirements have not gone down well with the market that is already reading sinister motives while viewing the turn of events as a mere scheme to benefit some interested parties.
The amount of the indemnity and the mode of its payment still remain under wraps.
"Following yesterday’s meeting (Thursday) on the issues arising from the Safaricom IPO, it was agreed that all selling agents perform a batch reconciliation of all the applications that were sent to Citibank," Mr Mohamed Hassan Dyer & Blair’s joint managing director said in the memo.
"It was further agreed that this reconciliation be completed by 4pm Friday, July 25, 2008, so we can report to the Privatisation Commission the global position pertaining to the following issues and request for a part payment of the placing commission based on the interim reconciliation."
Allotment Type
The interim reconciliation is expected to incorporate issues to do with under allotment, over allotment and non allotment and the selling agents are required to provide summarised reports on the number of cases and the monetary exposure arising from those cases.
The unfolding scenario is raising serious concerns in the financial markets with some commercial banks starved of cash to invest in Government securities nd contemplating interest hikes should the liquidity crunch and rising inflation trends persist.
Investment in stocks and Government securities continued to slump as investors reviewed their investment plans to factor in the competing needs.
Official data from the bourse indicates that the NSE 20-share index and the NSE All Share Index (NASI) dived 4.1 per cent and 2.9 per cent to 4,963.46 and 105.77 by close of the week last Friday from 5,175.83 and 108.82 as at May 30.
The fixed income securities market saw the bond turnover dip by a whopping 94 per cent to Sh192.5 million from Sh3.04 billion as bond transactions dropped 99 per cent to one from 74 in a similar period.
During this period the average 91-day Treasury bills rate and 182-day Treasury bill rates jumped 57 basis points and 34 basis points to 8.213 per cent and 9.185 per cent from 7.64 per cent and 8.85 per cent due to tight liquidity in the market.
Monetary Policy
While absolving itself from prevailing money market distortion, the Central Bank blamed the Safaricom IPO for the current instability in the market and ruled out the possibility of intervention through its monetary policy instruments.
However, market insiders say the CBK is contented with the current status quo where Sh60 billion is held back in banks. It’s believed that any additional cash infusion would have a disastrous effect on the already volatile money market.
The regulator, while openly admitting that the banking industry was short of cash, said the problem has been prompted by distortions created by the Safaricom IPO and that it "should not be a matter of concern to CBK" in a fundamental way.
"The dominant liquidity problems currently seen in the financial markets are associated with distortions of the Safaricom IPO," the bank said. Majority of the banks are in a tight liquidity squeeze occasioned by concentration of the Safaricom refunds in only four of the 44 licensed commercial banks.
Banks are now sending strong signals that should the current economic conditions persist and begin to eat into bottom lines of companies, revision of interest rates may be inevitable.
Already Commercial Bank of Africa is said to have warned that it will increase its base lending rates by 1.5 per cent from 14 per cent as from August 1.
Statistics indicate that the overall 12-month inflation stood at 23.9 per cent in May with the underlying inflation at 2.2 per cent above CBK’s benchmark of five per cent. CBK contends that the sector’s holdings of T-bills and bonds have declined


Source: Standard