Safaricom’s bid to reduce share float sparks debate

Such guidelines, which are not rigidly followed in emerging markets, would prevent foreign institutional investors from putting money in Kenyan companies whose shares are priced below Sh400, meaning almost all the major listed firms in the market.

A share consolidation usually results in companies reporting higher earnings per share, an accounting effect.

The dividend yield could rise or fall depending on whether the actual payout remains the same, decreases or falls in subsequent periods.

Some analysts have argued that increased interest from big investors and lower transaction costs would help improve the liquidity of a share, help in discovering its true value — which the management in this case would expect to be higher than the current market price.

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This, however, could be a tricky proposition for stockbrokers who derive their livelihood from selling and buying shares, even as they desire that small investors trade less often.

Safaricom accounts for at least 80 per cent of all shares traded at the NSE daily — an indication of how its dominance is central to their survival.

Some brokers are not convinced that consolidation could address the core issue that has depressed Safaricom’s share price, which is low investor confidence.

“Consolidation at this stage will not help,” says Mr Job Kihumba, the executive director at Standard Investment Bank, “Even if you do so, the participation of local institutional investors is just not there.”

He says that while consolidation can have some effect on the share price such as doubling its nominal value after consolidation, it will not alter the total value of the company.

Whether that could alter investors’ perception of the market and the overall state of the economy is hard to predict.

Even as the board could easily tinker with the cosmetics of the share certificate the company issues, it cannot window dress the economic reality that the mobile phone sector in Kenya faces.

With four players in the market—three of whom have been reporting losses—it is becoming increasing harder to make money in this business.

This is evident in the fact that Safaricom’s growth has been slowing, even as it continues to report impressive numbers and lead with product innovations such as M-Pesa.

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