The Lower Eastern Times Opening The Third Eye
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Treasury Cabinet Secretary John Mbadi has justified the government’s choice to sell a stake in Safaricom to a strategic investor instead of offering the shares directly to Kenyan retail investors, saying a public sale would have reduced the share price and failed to deliver value for money.
While appearing before the National Assembly’s Finance and National Planning Committee in a joint session with the Select Committee on Public Debt and Privatisation, Mbadi said the deal—expected to generate about $1.576 billion (Sh204.3 billion)—was designed to maximise returns, maintain market stability, and attract much-needed foreign exchange.
According to Mbadi, selling the shares directly to the public would have forced the government to offer them at a discount. He explained that Safaricom is already listed on the stock exchange, meaning its share price is determined by market forces.
Releasing a large number of additional shares to retail investors, he said, would have increased supply, weakened prices, and distorted the market in line with basic economic principles. He added that a retail offer would also require underwriting, increasing transaction costs, and would coincide with another major planned divestment involving Kenya Pipeline Company, potentially overstretching the market and depressing prices further.
Mbadi further noted that prioritising local investors would have limited foreign currency inflows, which is a key government objective amid ongoing pressure on the shilling.
The CS told lawmakers that the National Treasury appointed KCB Investment Bank as the transaction adviser to carry out an independent valuation of Safaricom shares. Legislators, led by Finance Committee chair Kimani Kuria, questioned why Treasury adopted a lower valuation compared to estimates by institutions such as Standard Bank, which placed the share price as high as Sh36.
In response, Mbadi said Treasury relied on 12-month target prices published by major investment banks. These included projections of Sh31 by Barclays, Sh30 by Investec, Sh30.1 by Absa, and similar estimates from NCBA and FIDA. He also cited HSBC’s November 2024 forecast of Sh28, which he said turned out to be highly accurate a year later.
While some analysts were more optimistic—projecting prices of up to Sh34 or even Sh36—Mbadi explained that such targets are forward-looking and must be discounted to present value. Once discounted, even the highest estimates fall closer to Sh32 per share, he said.
He emphasised that the government was divesting shares in a publicly listed company, not selling a physical asset, and therefore certain valuation approaches were not applicable. Mbadi insisted the transaction achieved a premium over the market price, strengthened the country’s foreign exchange position, and avoided destabilising the stock market.
Following negotiations, the government agreed on a sale price of Sh34 per share, significantly higher than the six-month volume-weighted average price of Sh27.5 and the prevailing market price at the time. Based on a market price of about Sh28.5, the transaction represents a premium of roughly 19 per cent and is expected to raise Sh204.33 billion (around $1.58 billion).
At the VWAP of Sh27.5 and with more than 40 billion shares in circulation, Safaricom’s market capitalisation stood at approximately Sh1.16 trillion, or about $8.98 billion.
