Why government should go slow on Safaricom divestment

 

Safaricom CEO Peter Ndegwa during a past event. The Kenyan government will receive a cumulative Sh244.5 billion by selling a 15 per cent stake in Safaricom Plc to Vodafone Kenya [File, Standard]

In December 2025, Safaricom announced a major restructuring where Vodafone Kenya Limited, through a 100 per cent buyout of its stakes by South Africa’s Vodacom Group Plc, will acquire a 15 per cent stake from the Government of Kenya to make Vodacom the majority controller with 55 per cent per cent ownership, while the government retains 20 per cent and the public 25 per cent. The Kenyan government will receive a cumulative Sh244.5 billion by selling a 15 per cent stake in Safaricom Plc to Vodafone Kenya for Sh204.3 billion and receiving an upfront Sh40.2 billion payment for future dividend rights on its remaining 20 per cent shareholding, a deal that grants Vodacom majority control with a 55 per cent stake.

The National Treasury is divesting the 15 per cent stake in Safaricom to the Vodacom Group to provide seed capital for the government’s newly approved Sh5 trillion National Infrastructure Fund (NIF) and Sovereign Wealth Fund. The proposed divestiture has sparked a national debate over its procedural integrity, valuation accuracy, and long-term strategic risks, with critics highlighting concerns regarding transparency, local economic exclusion, and potential structural disruptions to national security and governance.

The government faces criticism for underselling a 15 per cent stake in Safaricom at Sh34 per share (valuing the company under Sh1.4 trillion). Critics claim this 24 per cent discount to the 2021 peak of Sh44.75 ignores the value added by its Ethiopian market entry. Safaricom PLC currently holds a market capitalisation of  Sh1.18 trillion (Sh29.55/share) and an enterprise value of Sh1.33 trillion (Sh33.20/share). However, alternative valuation models suggest significant untapped potential: Earnings and revenue multiples project higher valuations of Sh4.48 trillion and Sh10.11 trillion, respectively. Looking further ahead, long-term Discounted Cash Flow forecasts anticipate aggressive growth, estimating the company’s value could reach Sh26.57 trillion or Sh663.21 per share by January 2036.

Valuation is an interpretive exercise that synthesises data into a cohesive narrative rather than seeking a singular “correct” figure. To establish a balanced fair value, analysts typically combine the theoretical rigour of Discounted Cash Flow models with the practical benchmarks of relative multiples, such as Price-to-Earnings ratios. In capital-intensive industries like telecommunications, the Enterprise Value model is particularly effective for neutralising variations in debt and depreciation across different companies. While analyst targets for Safaricom Plc average Sh35.53 with a peak of Sh44.00, a multi-faceted valuation approach suggests a significantly higher relative share value of Sh111.76. By employing this multi-faceted valuation approach, Safaricom Plc’s intrinsic share price as of February 2026 is placed at Sh111.76. This dual perspective balances immediate revenue realities with the high-growth potential characteristic of leading Fintech and technology firms.

The government’s decision to pursue a direct sale of a 15 per cent stake in Safaricom to the Vodacom Group at Sh34 per share has sparked pushback from stakeholders like the Institute of Certified Public Accountants of Kenya and some members of Parliament over its lack of transparency and potential undervaluation compared to Safaricom’s intrinsic value. The Treasury defends the price, citing a premium over recent trading averages and the need to avoid market distortion.

The proposed sale of Safaricom stake to address immediate fiscal deficits faces criticism for prioritising short-term liquidity over sustainable dividend growth, necessitating a rigorous legal and tax analysis, using the Subjective and Badges of Trade tests, to determine if the transaction constitutes a capital gain or revenue income

Under the Subjective Test, the reduction of the government’s stake in Safaricom is classified as the realisation of a long-term capital investment rather than a trading transaction, consistent with the government’s history of strategic ownership and gradual privatisation. Under the Badges of Trade Test, the sale of the 15 per cent stake is a capital transaction rather than an “adventure in the nature of trade” because it is a strategic, one-off divestiture necessitated by fiscal constraints rather than a frequent, profit-seeking business activity. The government’s proposed sale of the stake is classified as a capital asset disposal rather than a trading activity, providing immediate liquidity for national infrastructure while necessitating a careful balance against the long-term loss of consistent, high-value dividends.

Concerns exist that Vodacom Group is leveraging its insider knowledge and controlling position to acquire Safaricom shares at a reduced price, prioritising its own long-term gains over the interests of the Kenyan government and minority shareholders. 

The Law Society of Kenya has demanded that the proposed divestiture be conducted through competitive bidding rather than a direct sale, insisting on an independent valuation and full public disclosure to ensure the transaction achieves fair market value and upholds the highest standards of transparency.

Stakeholders suggest splitting Safaricom into telecommunications, M-Pesa, and infrastructure entities to increase valuation, but Vodacom Group opposes the separation, citing the deep integration of M-Pesa with the core network.

Safaricom Plc is transitioning into a purpose-led technology company through strategic investments in subsidiaries and joint ventures. These include Safaricom Ventures for startups, DigiFarm for agribusiness, M-Pesa entities (M-Pesa Holding Company Limited, and Safaricom Money Transfer Services Limited) for fintech services, and Vodafone Ethiopia Holdings Limited for regional expansion. This diverse portfolio supports innovation across various sectors as part of the group’s strategic framework.

Safaricom Plc has strategically diversified its portfolio through key associate stakes in Circle Gas Limited, operating the M-Gas brand via Safaricom’s technology ecosystem, and The East Africa Marine Systems Limited, a fibre infrastructure consortium. 

While necessary, the Safaricom divestiture must be restructured to prioritise shareholder value through a transparent, well-paced process.

We are not calling for a halt, but rather a strategic reconfiguration to avoid sacrificing long-term worth for short-term infrastructure funding. A refined approach will secure optimal financial returns while safeguarding the company’s ‘Kenyan character’ and national economic interests.