Kenya Is Attracting IPO Fever

This article appeared in the Tuesday, Wall Street Journal and was written by Sarah Childress.

Nairobi, Kenya--Despite global financial turmoil and months of violence in this corner of Africa, first-time investors are betting big on an initial public offering of stock on the Nairobi Stock Exchange.

Taxi drivers, kiosk owners and street vendors have been queuing up at banks in downtown Nairobi to subscribe to shares of mobile-phone company Safaricom Ltd. in east Africa's largest IPO. The government is selling 25% of the company, a stake valued at about $ 800 million. The new shares will be listed on the Nairobi Exchange in early June. There is no underwriter on the deal, though Morgan Stanley & Co. International PLC is serving as the coordinator and sole bookrunner.

The Safaricom offering which had been delayed from December amid election-related violence that month could be an early indicator that Kenya's economy--badly bruised by the violence--is moving on.

"After the IPO, I'm going to make a bit of money," said Mwatha Karuita, a 50 year old lab technician, as he prepared to buy shares one recent day.

Fierce ethnic clashes and a simmering political standoff set back an ecomomic boom this country had been enjoying. The government and opposition party took a step forward Sunday, when President Mwai Kibaki names a new cabinet, with opposition leader Raila Odinga as new prime minister. As part of the power-sharing deal, 40 cabinet postings were split between the president's party and its allies, and Mr. Odinga's Orange Democratic Movement.

Lingering tensions directly threatened the offering as recently as last month. Mr Odinga, who cliamed victory in the late December presidential election, held news conferences and threatened protests to warn Kenyans not to buy in because of a dispute over a minor shareholder in the company. But his advice went largely ignored. On the offering's opening day on March 28, people lined up peacefully by the hundreds for a chance to snap up shares.

The Kenyan government holds a 60% stake in Safaircom with Vodaphone Kenya Ltd., a subsidiary of London based Vodaphone Group PLC, owning the other 40%. After the sale, the government's share will drop to 35%. The government has been in discussions with the company for about four years to divest its majority share to raise capital and as part of its effort to diversify shareholders in state-0wned companies.

Safaricom is a household name in Kenya. Eight yers ago, American Michael Joseph was brought in to turn around the struggling carrier, at the time owned by state-run Telkom Kenya Ltd. Vodafone Kenya bought into the company in 2000.

On coming aboard, Mr. Joseph, chief executive, said the company had $ 20million in the bank and 17,000 "very unhappy" customers, "That's all we had," he said. He quickly retargeted the company's marketing and went after Africa's high growth but financially strapped "informal" sector.

Many Kenyans, unable to afford high public school fees, have had to forgo educations, finding themselves shut out of well-paying jobs. They turn instead to entrepreneurial pursuits--for instance, start-up car services, like my friend David Waweru, who left his job at Telekom Kenya, or hair braiding, Swahili lessons or house-cleaning.

Many of Safaricom's competitors saw these customers as a risk since the lack of a steady, dependable income meant they may not be able to pay their bills. Mr. Joseph introduced the prepaid calling and personal billing. The latter was a big departure from rounding up each finished call to a full minute, which was a big hit for customers watching every Kenyan schilling.

Safaircom also offered inesp0ensive phones and free, rount-the clock customer care. Last year the company introduced a banking program that allows people to send money via mobile phone.

The changes paid off. Safari-c0m now has about 9 million subscribers and claims 80% of the market share in Kenya. Longtime competitors Celtel Kenya and Telkom Kenya have only a sliver of the market now, though Safaricom will soon face additional competition from new entrants.

Kenya's elite--including black businessmen and wealthy South Asians--have seized on the IPO. Beginning last week, international investors also were given a chance to buy in.

Of the 10 billion shares to be sold, 65% will be offered to domestic investors while the remainder were available to foreign buyers. Retail investors will get 52% of the domestic offering. If the domestic pool is oversubscribed, the percentage of the available shares will be increased. The application period ends April 23.

Blue-collar workers and small-business owners are also rushing in. the offer price is about five Kenyan shillings, or about 8 US cents, a share. Some investors have pooled money to meet the 2,000 share minimum. Many of these first-time investors don't even have bank accounts.

Some who can barely support their families have applied for bank loans to raise enough funds for the shares, a practice that worries Michael Masau, executive director of Emerging Africa Capital, Ltd., an investment advisory company in Nairobi. He believes Safaricom is a good buy, but only for those able to pay in cash.

"It's an investment," he said. "People can end up losing all their finances. We tell them to only invest what they can afford to lose."

Jane Keobu, 35 years old and with her three-year-old tied to her back with a red scarf, came into a Diamond Trust Bank branch in downtown Nairobi one recent morning. She supports her five children by selling cabbage, potatoes, and sukuma, a vegetable used in traditional meals, in a small town outside Nairobi. With no bank or brokerage account, the single mother saved the $ 160 to buy a minimum stake, having decided to buy when the offering was announced last year. Bank respresentative set up special tables tables to help first-time buyers open up an account.

"This is my first time to buy shares," she says. "But when I saw them, I thought it'd be a good time."

Peter Ndirangu, 21, who works as a butcher, agrees. He came to the bank one recent morning, clutching forms to purchase shares. "When the price rises, I'll sell, he said.