Safaricom #ticker:SCOM investors are set to vote on special resolutions that seek to ring-fence the company’s cash cow, M-Pesa services, from the company’s major shareholder, Vodafone Group Plc.
Directors appointed by the London-based multinational or its subsidiaries will not vote on any agreements between their companies and M-Pesa, a move that aims to eliminate conflict of interest in such transactions.
Such board members are also expressly required to root for Safaricom’s best interests in instances where the Nairobi Securities Exchange-listed #ticker:NSE firm is making expansion or investment decisions that set it to compete against the UK firm.
“Directors that are appointed by VKL [Vodafone Kenya Limited] shall be excluded from voting on agreements directly related to M-Pesa and the mobile money platform, to which a Vodafone group member and the company are parties,” the special resolution says.
The resolutions, which will be put to shareholders’ vote at a general meeting on September 15, come after Vodafone restructured its ownership in Safaricom by spinning off a 35 per cent stake to its South African unit, Vodacom.
Vodafone Plc, which retained a five per cent stake in Safaricom through the investment vehicle VKL, is expected to cease pushing for any strategies that benefit its subsidiaries at the expense of the Kenyan firm.
The resolutions define VKL — controlled by Vodafone and Vodacom — as its incorporation number C79550 in what is seen as a pre-emptive move to thwart a name change and other corporate manoeuvres that could invalidate the decisions.
It was not immediately clear which party proposed the resolutions, but they most likely came from the Kenyan government, which holds a 35 per cent stake in Safaricom through the Treasury.
The rest of the shares are highly fragmented among institutional and individual investors, who have remained passive owners of the country’s most profitable firm.
Safaricom says the Vodafone/Vodacom transaction now frees it to take its mobile financial services to other African countries, triggering the planned safeguards against potential conflict of interests by the UK-based multinational in the expansion plan.
Besides dividends and capital gains, Vodafone further benefits from Safaricom by charging fees for services it offers the telecoms operator, including access to its global supply chains and the right to use M-Pesa.
The multinational earned a total of Sh3.7 billion from these fees in the year ended March compared to Sh4.1 billion the year before.
Vodafone previously charged Safaricom an M-Pesa licence fee of 10 per cent — payable quarterly — but halved the rate to five per cent effective August 2015.
M-Pesa’s exponential growth has seen it rise to generate revenues of Sh55 billion in the year ended March, rising by a third from Sh41.5 billion the previous year.
This saw it account for a quarter of the telecoms operator’s total revenues in the review period, ranking as the fastest-growing revenue item with a compound annual growth rate of 20.3 per cent over the past five years.
With the mainstay voice revenue peaking, the company is betting on data and M-Pesa to drive its growth going forward. The latest efforts to grow M-Pesa revenue include positioning the platform as a payment solution, with some 50,000 merchants recruited so far.
Besides ring-fencing M-Pesa, Safaricom’s shareholders will also be asked to approve resolutions that will ensure the company’s leadership will remain predominantly Kenyan.
“The directors may elect a chairman for their meetings, who shall be a Kenyan citizen, and determine the period for which they are to hold office,” read the resolutions.
“The directors shall encourage the retention of a predominantly Kenyan character in the senior management and executive committee of the company.”
Another resolution states that the appointment of Safaricom’s chief executive officer and chief financial officer as well as any material change in the company’s business plan will only be valid if approved by three-quarters of the directors.
This is seen as a move to force Vodafone — which has had the right to appoint the key executives — to build consensus when making the critical decisions.