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Monday, November 20, 2006

Vodafone Kenyan Compromise

The East African is reporting that Vodafone and the Kenyan government has found a compromise solution for the pressing needs of the government for cash to restructure the struggling fixed line operator Telkom Kenya.

The solution is let the market determine the value of Safaricom via an IPO and also allow the government to use 9% of its shareholding to guarantee a US$80m loan, the proceeds of which will be used to pay for firing of 6,000 workers at Telkom Kenya. Vodafone retains pre-emption rights on all the rest of the shares.

This seems to me to be a sensible solution and is a step in the direction of Vodafone taking taking control without paying a huge premium to the government. As night follows day, once the government gets the taste for raising badly needed cash from the disposal of equity in Safaricom, it will continue to do so until its ownership dwindles to 0%. When the price of Safaricom does not reflect the current bubble prices for African Mobile Assets, Vodafone can swoop and take full control.

There is even progression on the mystery owner front: the East African has an article on the 5% mystery owner and surprise, surprise they think it is the entourage from the previous Kenyan government of President Daniel arap Moi via what looks like a special purpose vehicle called Mobiletea Ventures. According to Vodafone Accounts, Vodafone acquired 30% of Safaricom and Mobiltea 10% when the government partially privatised the company in 2000. Also, they place the Jan 2003 Vodafone purchase of an additional 5% shareholding from Mobiltea Ventures to during the replacement of President Moi regime with the current President Mwai Kibaki. However, the East African reveals:
“According to information contained in the disclosures that Safaricom Ltd made when it went to the capital market for the first time in May 2001 to issue a Ksh4 billion ($54.8 million) bond, Vodafone plc purchased a 40 per cent stake in Safaricom in July 2000 for a sum of $42 million.”
Something smells very bad here and it is time for Vodafone to come clean before the whole escapade becomes a huge embarrassment. It is amazing the results that a little pressure delivers. The East African asks the critical question:
"Questions still remain as to whether Mobitelea Ventures Ltd actually paid for the shares in Vodafone Kenya or whether the shares were given to them gratis in exchange for services they may have rendered to the British investors."
I'm sure that there is a reasonable explanation of the difference in percentage holdings due to different classes of shares and holding companies, but key is whether any transactions were performed at a fair value.