Safaricom in February announced its first ever interim dividend of Sh0.45, more than three months after announcing a six percent drop in profit, pounded by the impact of the coronavirus crisis.
People familiar with the matter in the currency market and at Safaricom say the CBK’s push for the operator to split the shareholder payout was one of the key factors for the firm to break its tradition of making a single dividend payment.
Pressure from the Central Bank of Kenya (CBK) has forced Safaricom #ticker:SCOM to split its dividend payouts in the quest to shield the weakening shilling when the telecommunications firm seeks dollars for repatriation to foreign investors, it has emerged.
Safaricom in February announced its first ever interim dividend of Sh0.45, more than three months after announcing a six percent drop in profit, pounded by the impact of the coronavirus crisis.
People familiar with the matter in the currency market and at Safaricom say the CBK’s push for the operator to split the shareholder payout was one of the key factors for the firm to break its tradition of making a single dividend payment in August or September.
“Safaricom has to buy dollars from the market then repatriate the dividends. The dollar demand associated with this dividend payout is usually high. So this year CBK forced Safaricom to split the dividend to save the shilling from weakening,” said a banker who requested not to be identified.
“Safaricom’s growing dividend payout is now rattling the CBK. The CBK wants to avoid a repeat of last year’s pressure on the shilling when Safaricom went to the market for about $250 million to repatriate dividends.”
Safaricom last year declared a dividend of Sh1.40 a share, pushing its total payout that was made before end of August to Sh56.09 billion.
It had to buy dollars equivalent to Sh28.8 billion in less than a month to pay foreign investors, including UK giant Vodafone and South Africa’s Vodacom.
This rattled the market on heightened demand for dollars that led to the weakening of the shilling against the US currency.
The shilling weakened from Sh107.28 units to the dollar mid-July to Sh108.56 units in August 20, with traders linking the fall to dollar demand from Safaricom.
The local currency has also been under pressure against the dollar for most of this year after earnings from the crucial tourism sector collapsed due to the coronavirus crisis.
This has prompted the central bank to pump in dollars and stabilise the shilling on a number of occasions as well as review the demand side of the market like purchase of dollars by firms such as Safaricom.
“CBK discomfort with one huge payout in August is one of the reasons cited for the Sh18 billion interim dividend announced in February. The business was also seeing improved financial performance,” said a source familiar with Safaricom boardroom proceedings.
Safaricom is expected to announce a final dividend when it releases its results for the year ending March.
The telecoms operator has a policy of paying out at least 80 percent of net income as dividends.
Safaricom is among the listed companies that are maintaining dividend payouts since the outbreak of the Covid-19 pandemic, with a significant number of firms having cut or suspended cash distributions as a result of weaker earnings.
Splash
Safaricom’s Sh56.1 billion dividend payout for the year ended March last year was a rise from Sh50.08 billion (excluding the Sh24.88 billion special payout) made the previous year and 2.2 times higher than the Sh25.64 billion paid out in 2015.
The telco’s full-year dividend payout is higher than the combined Sh33.82 billion that Kenya’s top banks—KCB, Equity, Cooperative Bank of Kenya, Standard Chartered Bank Kenya, Stanbic, Absa Kenya, DTB, NCBA and I&M— paid out last year.
It also accounts for about 3.6 percent of the CBK dollar reserves of $7.656 billion (Sh819 billion) as at April 16.
The CBK is under pressure to shield the shilling from pressure with exports having slowed and foreign exchange reserves having opened April at a three-year low of Sh786.1 billion ($7.343 billion) or 4.51-months import cover.
This underlines the impact of the growing dividend payout from Safaricom on the currency market.
CBK governor Patrick Njoroge had successfully kept the shilling relatively stable since coming into office in June 2015 but the onset of Covid-19 disruptions in Kenya from mid-March last year has seen the local unit lose ground to the dollar.
The shilling slid to an all-time low of Sh111.59 to the dollar on December 17 last year, compared to an average rate of Sh101.99 a year earlier.
Kenya’s central bank sees the shilling as fairly valued, unlike the International Monetary Fund (IMF).
The IMF in 2018 reclassified the shilling from ‘floating’ to ‘other managed arrangement’ to reflect the currency’s limited movement due to periodic intervention by the CBK.
Earlier this month, the IMF maintained that the shilling was overvalued while announcing the $2.34 billion (Sh253.3 billion) loan deal with Kenya.
The IMF noted that Kenya’s real effective exchange rate (REER) had depreciated by about eight in the year to December and that the local currency was overvalued by up to 9.1 percent.
“Taking into account the results of the External Balance Assessment (EBA)-lite CA (current account) model, staff assesses the REER gap to be in the range of three percent and 9.1 percent,” said the IMF.
REER is the weighted average of a country’s currency in relation to an index or basket of other major currencies.
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