VZCZCXRO8088
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHNR #0762/01 0781340
ZNR UUUUU ZZH
R 181340Z MAR 08
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 5131
INFO RUEHZO/AFRICAN UNION COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP

UNCLAS SECTION 01 OF 02 NAIROBI 000762 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE PASS USTR - BILL JACKSON AND JONATHAN MCHALE 
STATE FOR AF/E, AF/EPS AND EB/CIP 
 
E.O. 12958:  N/A 
TAGS: ECON ECPS EFIN PGOV KE
SUBJECT: KENYA: SAFARICOM IPO GETS GREEN LIGHT 
 
REF: 07 NAIROBI 4202 
 
NAIROBI 00000762  001.2 OF 002 
 
 
Sensitive-but-unclassified; not for release outside USG channels. 
 
¶1.  (SBU) Summary: With all elements of the new Kenyan coalition 
government in agreement, Kenya's Minister of Finance has given the 
green light for the launch on March 28 of the largest initial public 
offering (IPO) in the country's history.  The government will sell 
to the public $770 million in shares of Safaricom, Kenya's leading 
mobile phone company, in a deal that is expected to re-energize both 
domestic and international interest and investment in the Kenyan 
economy.  Just as important, the IPO will generate cash for a budget 
that badly needs money for post-crisis economic reconstruction.  End 
summary. 
 
-------------------------------- 
Safaricom IPO to Launch March 28 
-------------------------------- 
 
¶2.  (U) Kenyan Minister of Finance Amos Kimunya publicly announced 
on March 14 that the Government of Kenya (GOK) would launch on March 
28 the much-anticipated initial public offering (IPO) of shares in 
mobile phone company Safaricom, Kenya's largest and most profitable 
company.  As reported reftel, the IPO has been in the making for 
some time and is widely expected to be the largest IPO in the 
history of the Nairobi Stock Exchange (NSE). 
 
------------------- 
The Price is Right? 
------------------- 
 
¶3.  (SBU) In his March 14 announcement, Kimunya said the deal will 
involve the sale of 10 billion shares of Safaricom (representing 25% 
of the company) at KSh5 per share for total proceeds of 
approximately KSh50 billion - or about $770 million.  The government 
will retain 35% of Safaricom's shares.  It appears that the GOK on 
the one hand wanted to maximize the proceeds of the IPO.  But it 
also wanted to ensure the public, including small retail investors, 
are able to share in the wealth generated by the offering.  Kimunya 
thus said the price represents a 14% discount of the actual book 
value of the firm.  It might be an even steeper discount.  Speaking 
to Econ/C March 17, Permanent Secretary Bitange Ndemo of the 
Ministry of Information and Communication commented that traditional 
valuation methodologies for mobile phone companies indicate 
Safaricom might be worth as much as $10 billion in total. 
 
¶4.  (U) The offering will be divided into two pools, with 65% set 
aside for domestic investors and 35% for foreign institutional 
investors.  If, however, the domestic pool is oversubscribed by more 
than 200%, the foreign pool can be reduced to as low as 20%.  It's 
quite possible this will happen, as IPOs held in 2007 generated 
spectacular domestic demand, and Safaricom is a much higher profile 
and more profitable company.  The IPO period will last from March 28 
to April 23, and secondary trading on the NSE will begin on June 9. 
The IPO is expected to attract as many as 10 million individual 
investors and significantly boost NSE trading volumes. 
 
----------------------------- 
The Politics of Privatization 
----------------------------- 
 
¶5.  (SBU) The Safaricom IPO has been months in the making, and was 
part of a larger set of important interlocking reforms in the 
telecom sector (see reftel).  The proceeds, originally forecast to 
be KSh35 billion ($540 million), were also seen as critical for 
plugging a GOK budget deficit forecast in June 2007 to be 5.3% of 
GDP.  The GOK was unable, however, to bring the IPO to market late 
in 2007 prior to the December 27 election.  When the disputed 
results of the election touched off severe civil unrest and economic 
mayhem in January and February, it was even less clear when the GOK 
would be able to successfully launch the deal. 
 
¶6.  (SBU) One reason the IPO was not brought to market in 2007 was 
opposition from the Orange Democratic Movement (ODM), led by ODM 
presidential candidate (and now presumptive Prime Minister - see 
below) Raila Odinga.  Fearing the GOK would use the proceeds of the 
IPO as its campaign war chest, the ODM sought to have the IPO halted 
through the courts.  ODM legal arguments were recognized by the 
courts as frivolous, but court proceedings contributed to delays 
that made bringing Safaricom to market before the elections 
untenable. 
 
¶7. (SBU) Kimunya's March 14 announcement is thus as much a symbol of 
political reconciliation as of economic common sense.  Indeed, the 
GOK's ability to move ahead so swiftly after the political crisis of 
 
NAIROBI 00000762  002.2 OF 002 
 
 
January and February stems directly from the landmark February 28 
power sharing agreement reached by President Mwai Kibaki and Odinga. 
The agreement abruptly ended the crisis and has set the stage for 
political stability and reform in the weeks and months ahead, with 
Odinga joining government in a newly-created prime ministership.  In 
this new context, Kimunya was able to have a private lunch with 
Odinga, an erstwhile bitter political enemy, just prior to his IPO 
announcement.  In a well-choreographed piece of political goodwill, 
Odinga expressed his support for the IPO, and Kimunya later 
commented that Odinga also expressed a personal interest in 
participating in the IPO as an investor. 
 
----------------------------------- 
Comment: A Quadruple Play for Kenya 
----------------------------------- 
 
¶8.  (SBU) It is possible something unforeseen could derail the 
Safaricom IPO altogether, or that it will be marred by questionable 
share allocations to insiders at the expense of small-time investors 
- as has happened in the past at the NSE.  But we feel cautiously 
optimistic that the IPO will be broadly successful.  If so, it will 
amount to a quadruple play for Kenya.  First, as noted, it both 
derives from, and helps reinforce, political reconciliation, with 
the two former rival camps anxious to be seen as doing the right 
thing for the country.  Second, with international participation, 
the IPO will hopefully help repair the damage to Kenya's brand image 
and attract the interest of international investors not just to the 
IPO, but beyond that to a sovereign bond issue that was also being 
planned prior to the post-electoral crisis.  Third, as noted in 
reftel, the IPO amounts to the privatization of Safaricom, and 
together with other related events and reforms, it helps set the 
stage for greater compeition, better services, and much lower costs 
across the economy for businesses and consumers alike.  Finally, 
Kenya needs the money.  In fact, the GOK had already budgeted for 
the Safaricom proceeds even before the political crisis.  The 
economic damage done by the latter makes it even more imperative 
that funds be found to finance reconstruction and reconciliation. 
Ranneberger