Activists urge High Court to declare Safaricom share sale unconstitutional

Activists challenge Safaricom stake sale in High Court showdown. [Courtesy]

The government's bid to sell its 15 per cent stake in Safaricom to Vodacom Group intensified on Monday after activist Tony Gachoka and other petitioners urged a three-judge bench of the High Court to declare divestiture unconstitutional, illegal and void.

Gachoka and his co-petitioners warned that the deal, which was cleared by the Court of Appeal on Friday to proceed, would hand effective majority control of Safaricom, one of Kenya's most strategic national assets, to foreign-controlled entities.  

Appearing before a three-judge bench of Justices Francis Gikonyo, Roselyne Aburili and Tabitha Ouya, lawyers led by Senior Counsel Kalonzo Musyoka and advocate Soyinka Lempaa argued that the planned disposal of more than six billion government-held Safaricom shares violated the Constitution and the Privatisation Act.

The petitioner's lawyers mounted a fierce assault on the proposed divestiture, faulting the transaction on multiple fronts, from unconstitutional revenue-raising to absent public participation and a grossly undervalued share price.

In his lengthy submissions, Musyoka told the court that although the conservatory orders issued earlier had been lifted by the Court of Appeal on Friday, the High Court still retained full jurisdiction to determine the legality of the transaction.

"It is not lost on the petitioners that following your ruling... the conservatory orders were set aside on Friday. But the Court of Appeal also made it clear that the mandate of this court is not interfered with and that you... will be at liberty to make a decision we believe will be in the best interest of this country," Musyoka submitted.

At the heart of the petitioners' case is their contention that the government proposes to sell 6,009,814,200 shares, slashing its shareholding from 35 to 20 per cent, in a transaction that would leave Kenya with only two board seats while Vodacom Group consolidates effective control of approximately 55 per cent.

Musyoka further maintained that the proposed sale deal would create monopolistic control, contrary to the Privatisation Act, which requires the Cabinet Secretary to consider national security interests and avoid privatisations that may result in monopolies.

 "The reduction from 35 to 20 per cent, reducing therefore the government shareholding to a minority...the respondents become monopolistic," he warned the bench.  

The petitioners also alleged that the shares had been significantly undervalued.

"We argue that the shares have been grossly undervalued," Musyoka said, adding that they were relying on expert evidence filed before the court.

Lempaa accused the government of attempting to raise revenue through an unconstitutional process and claimed the sale had been shrouded in secrecy.

He urged the court to take judicial notice that Safaricom's share price had risen significantly, arguing that earlier court orders had already saved taxpayers billions of shillings.

The lawyer further attacked the government's public participation process, insisting that it failed to meet constitutional standards.

"It is a lie from Mbadi that the government conducted public participation," Lempaa told the court, listing 17 counties, including Bungoma, Busia, Migori, Narok, Siaya, Turkana, Lamu and Bomet, where no public forums were held despite Safaricom's infrastructure being present and in daily use there.

On valuation, the petitioners relied on expert evidence from investment banker Irungu Nyakera, a former Principal Secretary at the National Treasury, whose affidavit concluded the transaction price of Sh34 per share was materially below fair value.

Lempaa told the court Nyakera had pegged Safaricom's weighted fair value at Sh57.90 per share, representing a 41.3 per cent discount and foregone public proceeds of approximately Sh143.7 billion, a figure that could rise to Sh277.5 billion once M-PESA is properly valued as a standalone fintech platform.

According to the petitioners, the proposed sale also threatens national security because Safaricom operates critical telecommunications infrastructure used during elections and other essential government functions.

The government and the CS Treasury, through Senior Counsel John Ohanga, vehemently opposed the petition and urged the court to dismiss it.

Ohanga argued the petitioners had built their case on the wrong legal foundation, contending the correct statutory route for the share sale was Section 87A of the Public Finance Management Act, which had been duly complied with through both Cabinet and National Assembly approval.

"The petitioners have built their case on the wrong legal foundation. They ask this court to treat this matter as a privatisation programme falling under the Privatisation Act...at Section 4, each of those acts excludes the sale of shares from the element of those acts," Ohanga submitted, dismissing the constitutional objections as superficially attractive but legally misconceived.

Ohaga maintained that all legal requirements had been met, including Cabinet approval and approval by the National Assembly.

On allegations that there was no public participation, the government insisted the process complied with Article 10 of the Constitution.

"Public participation forums were held across more than 30 counties... 78 stakeholder institutions were included," he told the court.

He also rejected claims that the shares had been undervalued, arguing that the court was not a valuation tribunal.

"The court's role is to assess the legality of the transaction... The petitioners' expert opinion is not proof of unconstitutionality. It is at most a different professional opinion," Ohaga submitted.

The respondents further dismissed arguments that the transaction would compromise national security or data sovereignty, saying Safaricom would remain fully subject to Kenyan laws regardless of changes in its shareholding.