Nairobi, Kenya
Many local retail investors that bought into Safaricom during its initial public offering (IPO) in 2008 will miss out on the firm’s big pay day after they sold off their shares. The firm’s share price has been trading at subdued levels for most of the five years it has traded at the Nairobi Securities Exchange — at below the IPO price of Sh5. This has been a cause of anguish for many shareholders, with a large number choosing to cut their losses by selling their stock.
The Safaricom IPO was historical for the country’s capital markets, bringing in many local investors who had never bought shares. Banks also cashed in on the rush, offering investors unsecured loans. However, the depressed share price and what many considered to be minimal dividends in the initial years — after a 532 per cent oversubscription saw people get fewer shares than anticipated — saw many first-time investors sell their shares at levels below the IPO price and swear off the stock market.
A look at the firm’s share register between 2009 and 2012 shows a 20 per cent decline in the number of shareholders, from 860,000 to 720,000 by March 2012. However, in the course of this year, the company’s share price has rallied, closing at Sh7.15 on Friday. The company’s board has also recommended a dividend payout of 31 cents per share (44 per cent higher than last year’s 22 cents). If shareholders approve this, Safaricom will spend Sh12.4 billion in dividends, the highest amount ever paid out by a firm listed at the NSE.
“The register has contracted due to a lack of patience exhibited by local retail shareholders, mostly because of the negative return on investment,” said Amish Gupta, an investment banker. Local retail shareholders continued to sell their shares throughout the last financial year to March 2013, with analysts noting that the rally in the share price the last few months has been driven mostly by demand from foreign and institutional investors.
Share price and dividends have been the two issues that have pitted retail shareholders and the company’s board of directors against each other at annual general meetings. The company has in the past mooted the idea of share consolidation and a buy-back plan, which would starve the market of its shares and hopefully shore up the price. This was also hindered by legislation hindering listed companies from taking such action.
Investment analysts note that the current rally in the share price is good thing for the market. “Investors are driven by potential for gain and the fact that Safaricom has moved far above its IPO price is good news,” said Job Kihumba, executive director at Standard Investment Bank. He, however, noted many investors will fail to glean investment lessons from Safaricom.
“Many of those that are referred to as retail investors are largely not driven by the fundamentals of a company or an analysis of their investments, but by the hype of the moment. However, a few people learn from the past. When Kenya Airways went public in 1996, prices went down but those who waited before selling their shares saw the value go up as much as 10 times.”
(standardmedia.co.ke)
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