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Capital Markets

Safaricom staff shun ESOP over low share price

An investor walks out of the Nairobi Securities Exchange offices. Safaricom employees have had a three-year offer to buy more than 100 million of the company’s shares but the low price of the share has discouraged participation. Photo/File
An investor walks out of the Nairobi Securities Exchange offices. Safaricom employees have had a three-year offer to buy more than 100 million of the company’s shares but the low price of the share has discouraged participation. Photo/File 

A persistently low market price has discouraged Safaricom’s staff from participating in an employee share ownership plan (ESOP) with less than eight months to closure of the offer period, the company has reported.

The telecommunication firm’s employees have had a three-year offer to buy more than 100 million of the company’s shares at a pre-determined price of Sh5.40 a share.

Safaricom’s market price has, however, remained below the ESOP offer price, making it un-attractive for employees to participate in the scheme.

In the a newly released annual report for 2012, the company notes that if the staff had taken up all the 101 million shares offered under the ESOP plan, the current Safaricom shareholders would have been diluted by 0.25 per cent upon the shares listing in the market.

“There is no significant impact on the financial statements in the current year because the grant price has remained higher than the current market price, making the fair value of the options approximate to zero, due to the unlikely exercise of the grants at current rates,” said the company.

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Safaricom’s current market price is in the range of Sh3.80 a share.

Analysts said the Sh5.40 ESOP offer price reveals the optimism that the management had on the expected performance of the share at the stock market.

However, since its listing the share has mostly traded below the listing price of five shillings. In the past one year the share has touched a high of Sh4.05 and a low of Sh2.70.

“They expected the price to go up but it has come down since its listing so by exercising the option, employees would be losing money,” said Eric Musau, an analyst with Standard Investment Bank.

The high liquidity of the stock, with more than 10 billion shares available as free float at the stock market, has seen it become the most traded stock since its listing in 2008 and made it attractive to speculative investors.

However, with the share trading at below the IPO price, most retail investors have felt cheated as selling the share would see them lose cash.

Safaricom’s management has also raised concern over the share price, arguing that its fundamentals were stronger than reflected by the price.

It has even contemplated buying back some of its shares from the market so as to boost the price.

More than 400,000 investors in Safaricom hold less than a thousand shares.

The company has remained the most profitable in the region and seeks to maintain this position through its mobile banking platform M-Pesa and Internet services.

In a bid to retain talent, companies have been encouraging their employees to buy their shares by offering lower prices.

In July last year, Safaricom implemented a share grant option plan under which it started buying its equities in the market and allocating them to some of its staff based on their performance appraisal.

Five years

The company is already holding 7.8 million shares at a cost of Sh25.6 million in a trust, which will be passed on to the entitled employees in two years’ time.

Some of the blue-chip firms that have implemented ESOPS include East Africa Breweries, KenolKobil, Athi River Mining, AccessKenya,Scangroup and Equity Bank.

Scangroup offered its shares at between Sh30.25 and Sh33 to its staff before its initial public offering while Equity Bank offered its staff at Sh75.

The staff members who opted to buy the shares are, however, expected to hold them for a minimum period of five years before selling in the open market.

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