Standard Investment Bank (SIB) says the National Treasury is selling its 15 percent stake in Safaricom at a discount of 15.4 percent, based on comparisons of recent transactions of similar assets and the telco's expected future earnings.
The transaction announced last week is priced at Sh34 per share where the buyer –South Africa’s Vodacom Group will pay the government Sh204.3 billion for the six billion shares.
The investment bank however sees the fair value of the company at Sh40.19, signifying a higher premium to the prevailing market price and Vodacom’s offer price.
“The transaction price of Sh34 is a premium of 20.6 percent to the current market price but a discount of 15.4 percent to our fair value estimate of the business,” SIB said in a research note.
The fair value is a measure of an asset’s current market value which assumes a free negotiated price between a buyer and the seller.
The higher fair value estimate of Safaricom suggests that the government could be leaving about Sh37.1 billion on the table by selling its 15 percent stake in the telecom’s operator at Sh34 per share.
The government has also sold its rights to receive Sh55.7 billion worth of future dividends on what will be its residual stake of 20 percent in Safaricom to Vodacom for an upfront payment of Sh40.2 billion, discounting the future cash flows by Sh15.5 billion.
The National Treasury has stood by its valuation of the company amid contention on pricing from various quarters, highlighting the divestiture to an existing partner in Vodacom and low settlement risks.
“The partial divestiture especially to an existing partner like Vodacom enables the government to realize optimal value from its mature investment by selling at Sh34 per share which represents a significant premium compared to the market price as opposed to an on-market sale which would typically attract a discount to the market price,” the Treasury said in a sessional paper to Parliament.
“It has also been agreed that the proceeds generated will be paid in US dollars amounting to $1.577 billion. This transaction eliminates any settlement risk, as Vodacom has a strong financial capacity and proven track record in completing similar investments.”
The shareholding of the South African multinational in Safaricom will rise to a controlling 55 percent from the current 35 percent. The Johannesburg Stock Exchange-listed firm is also buying a five percent stake in Safaricom from its parent firm Vodafone Group at a cost of Sh68.1 billion and at the same price of Sh34 per share.
“Vodacom Group Limited, will in effect gain control premium on Safaricom Plc, implying that Safaricom financials will be consolidated by Vodacom Group Limited, with the remaining shareholding treated as minority, in line with IFRS standard,” SIB added.
The government says proceeds from the transaction are expected to be deployed to critical infrastructure investment priorities including energy, roads, water and airports.
The National Treasury has asked Members of Parliament (MPs) to give the transaction the green light and has also highlighted approvals and notifications from relevant regulators and stakeholders including the Competition Authority of Kenya, the Central Bank of Kenya, Communications Authority of Kenya and the Nairobi Securities Exchange.
“The National Assembly is requested to consider and approve the proposal for partial divestiture by the government of Kenya of its shareholding from 35 percent to 20 percent in Safaricom Plc,” the National Treasury said.
