Mbadi: Why we sold Safaricom shares to Vodacom

Treasury CS John Mbadi. [Elvis Ogina, Standard]

The National Treasury has defended its plans to sell a 15 per cent stake in Safaricom to Vodacom while shunning the option of offloading the shareholding through a public offer that would have given local investors an opportunity to increase their ownership in the region’s most profitable company. 

For the past few days, the government has come under sharp criticism after it emerged that it would be reducing its shareholding in the telco.

Critics have raised several concerns over the sale, with some citing the company’s strategic importance to Kenya’s economy, while others argue that the government should have offered more shares for public trading at the Nairobi Securities Exchange (NSE).

There is also contention on the sale price of the shares at Sh34 per share. Even though its higher than the current NSE trading price of Sh28, critics say the shares are undervalued, since the price of the shares reached a high of Sh45 in 2021.

But Treasury CS John Mbadi has defended the decision to sell to an external firm, arguing that selling its stake through the NSE might not fetch the Sh34 that Vodacom has offered to pay per share.

If anything, Mbadi argued, the likelihood would have been a discount on the current price.

He also noted that a local sale would have further diluted the price as it would have flooded the market with more shares.

Mbadi also noted that offloading its Safaricom shares at NSE would have affected the plan sale of the Kenya Pipeline Company (KPC), which the government plans to privatise through an Initial Public Offer (IPO) by end of March next year.

The government expects to raise Sh244.5 billion from the sale of the 15 per cent stake in Safaricom to Vodacom. The deal will see Vodacom purchase a 15 per cent stake from the government for Sh204 billion.

Vodacom will also buy the government’s right to receive future Safaricom dividends and will make an upfront payment of Sh40.2 billion to the Treasury.

“It would have not been prudent to offer this company to the public for a number of reasons. (One is that) the share price would have been at a discount and the price would come down, because when you offload more shares, you are creating more supply of shares and the prices would come down,” Mbadi said during an interview at Standard Group’s Spice FM.

He added that the timing might have also affected the planned privatisation of KPC and that one transaction could mop up resources from investors which would then lead to the underperformance of the other.

“We have another company (KPC) that we are soon giving to the public… if you give another asset, it would saturate the market,” said Mbadi.

“There is also benefit in divesting the shares to vodacom because they will pay in hard currency (US dollars) as opposed to offloading the shares in the domestic market. Hard currency has the benefit of increasing and improving our foreign exchange reserves, which would help us stabilise the shilling further.”

“In terms of economic fundamentals and economic decisions, it makes more sense for the government to move in this direction.”

He also said that “Vodacom has history with Safaricom, they understand the company, they understand the business and can take more risk than any other new player coming in”.

The CS also dismissed critics who have questioned why the transaction has not been subjected to public participation considering its public ownership but also the critical nature of the company in the Kenyan economy.

Other than being the largest mobile network operator, the firm’s mobile money service M-Pesa has been critical in expanding financial inclusion.

Mbadi said MPs will take the transaction through a public participation phase and the government’s decision to proceed with or drop the sale would be informed by Kenyan’s views.