Monday, November 17, 2008

IPOs: The matatu syndrome

The unspoken matatu rule that used to operate before the "Michuki rules" was that there was always room for one more. If a matatu had 4 seats per row, these were transformed into 6 or 7 passengers not counting children depending on how busy things were.
In the last few IPOs, this matatu syndrome seems to have become the rule of thumb that D&B (how come it goes all the lead broker roles?) applies to IPOs. So where:
  • Safarcom would have been a better IPO listed as 2.5bn shares at Ksh20 each; it was listed as a flooding 10bn shares each worth a very cheap-looking Ksh5.
  • Co-op could have been listed in a similar manner to Equity at say Ksh30 with fewer shares; it now has 3.2bn shares each worth ksh9.50.
Mathematically it may not make any difference, but there are several problems with this low-rent and myiopic approach:
  1. Potential shareholders look for two things price appreciation and dividend. Most can forget about a Safaricom dividend.
  2. Capital raising measures: One of the reasons that companies list is so that should they need to, they can raise capital via the stock market. Can you imagine Safaricom doing a rights issue or Co-op? Both would most likely flop unless offered at a Ksh1 each.
  3. Administrative cost: Flooding the market shares means you also have to flood it with investors cue admin costs.
Hopefully going forward, IPOs will be done more flexibly and sensitively.


Isaac said...

RespectRESPECT is the best gift you could give to your Kenyan brother or sister that you can not do without.

MainaT said...

Isaac-your comment was lost in translation... i.e. I am not sure if it relates to this post