Kenya: On June 9, mobile phone firm Safaricom celebrates six years since its shares started trading at the Nairobi Securities Exchange.

Investors who stuck with the share are a happy lot, with the share trading at Sh12.85 by close of business on Friday, more than double its initial public offer price of Sh5 in 2008 and a far cry from a low Sh2.50 in 2011.

But, some investors are telling a different tale, as they are yet to get their refunds from the oversubscribed Initial Public Offering (IPO) amounting to Sh120 million. The 2008 Safaricom IPO was overwhelmingly oversubscribed, after attracting some 800,000 new investors – mostly retail – to the bourse, bringing with them over Sh220 billion against the Sh50 billion the telecom firm was seeking through the offer.

Fraudsters took advantage of the sheer volumes of cheques on issue and colluded with stockbrokers and bank staff to access and cash stolen cheques. The refund process was also marred with unclaimed refunds leading to disagreements between selling agents and Citibank, the main receiving bank for the offer.

“There are a number of reconciliation issues between stockbrokers and the receiving bank to date,” said Paul Muthaura acting chief executive Capital Markets Authority (CMA).

Queries to Citibank on the progress of resolving the Safaricom IPO refunds went answered.

In the past five years, the CMA has been pursuing people suspected of theft of Safaricom IPO refunds, including former employees of stockbrokerage firms. Muthaura in an interview with The Standard on Sunday said the regulator is trailing nine fraudsters who it accuses to have forged identity cards to steal millions of shillings in Safaricom IPO refunds belonging to investors.

“Tracking down and arresting them has proved to be hard. We have a dedicated team of 10 CID officers who work fulltime in the Capital Markets Fraud Investigation Unit,” he said.

The unit, two months ago issued warrants of arrest to nine suspects, accused of colluding with bank officials to cash investors’ cheques.

Muthaura said half of those the regulator arrested were given bail against its recommendation. “They ran away and we can’t track them down,” he said.

He said four of them have been charged in court for misappropriating either cheques or people’s cash. Three of the fraudsters used fake names similar to those of investors to obtain millions of shillings of IPO refunds. The three were identified through CCTV in Stockbrokers’ premises coming in with fake identification cards to obtain the refunds.

Offset loans

“The fraudsters claimed other people’s refunds. We don’t know their real names. We are hoping to use the public to help us identify who are these, arrest and put them to account,” he said.

“We currently have an outstanding amount of about Sh120 million where that figure is based on records at Citi Bank, who were the receiving bank, and records of stockbrokers.” He added that in addition to the huge numbers that the capital market players had to deal with during the IPO, there was also an issue of poor record keeping that made more complex how the refunds were handled.

More painful is that a number of these investors had gone for bank loans to finance their applications for the shares, pushing amounts received from the domestic investors’ application pool to Sh115 billion, equivalent to an oversubscription rate of 254 per cent. This means, those who have not received their refunds have had to spend extra to service the loans. Some minority investors applied specifically for Safaricom IPO loans, forcing a number of them sell off their shares in the firm to offset their loans.

“We are facing a big challenge on how to close up the final figure because it is based on records and transparency. In some situations, ether records are not sufficiently complete, or a large portion of people are not being honest,” Muthaura said.

Also, from the Safaricom IPO, in late April, KCB filed a multi-million shilling claim against Suntra Investment, a stock brokerage firm, over the botched purchase of Safaricom shares. The bank is seeking Sh22.2 million interest dating back five years for share purchase orders, which it claims Suntra failed to honour. The case is the third that KCB has filed against Suntra arising from the Safaricom IPO.  The lender says 165 clients took loans to buy Safaricom shares, money that was paid directly to Suntra, but the stockbroker failed to deliver on the order.

KenGen is the other firm whose IPO refunds encountered challenges and unspecified amount is still outstanding according to CMA. “In KenGen and Safaricom IPOs there were challenges with the refunds because of the huge number of shares that were sold to the public… the amount of money owed to investors who bought into the KenGen IPO is however significantly small,” said Muthaura.

“We continue to work progressively with stockbrokers and Citi Bank to resolve this.” But there will come a figure that won’t be resolved and we will have to come up with policy directions on how to deal with the outstanding amount.”