Safaricom Soars in Kenya IPO (VOD, GAF, EZA, TRAMX)

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Today was a feature we have loosely been covering on occasion, and that is investing on the final frontier here on Earth: Africa.  Interestingly enough, Vodafone Group plc (NYSE: VOD) is tied into this company with ownership.

Kenya’s IPO of a 25% stake in Safaricom saw high enough demand that it’s IPO was oversubscribed by the tune of almost 5-times.  Its value was about $800 million depending on which currency conversion dates you use.  This was offered at a price of 5 shillings (close to $0.08), and shares closed on the first day at 6.95 shilling on the local market after hitting a high of around 8 shillings.  This closing price gives the closing value via market capitalization of about $4.5 Billion.

Safaricom is the nations largest mobile telecom operator with over 10 million users, which sells airtime for as little as pennies and allows micro-payments to purchase small increments in airtime.

This had unfortunately seen its IPO delayed, and more peaceful times allowed the demand to surge.  Whether or not the coalition holds up or not, well all we can say it that it is Africa and political instability is all part of the risk and reward equation there.  The success of this IPO may lead to several other IPO filings and other pricings in other infrastructure stakes in the East Africa nation.

Vodafone owns a 40% stake in the offering via its Kenyan unit called Vodafone Kenya Ltd.  Before the IPO the government owned some 60% of the company, and its stake has now been reduced down to 35% after one-quarter of the company was sold off to the public.

Interestingly enough, there are reports that many locals and first time investors were disappointed and many had borrowed money to buy shares.  The extent of that isn’t yet formalized and may not be known for several days.

So why are we covering an African IPO, particularly with all the political and event risk in most African nations?  The answer is simple: this is the last true emerging and pre-emerging spot on the globe.  It is a total and complete maze for investors to participate in the investment of Africa’s development because of the questions around corruption, cross-border issues, famine, disease, poverty, and on and on.  That is also the greatest shot for long-term gains if and when the risks in Africa become mitigated even a fraction compared to today.

In the start of January 2008, we offered 3 ETF’s and mutual funds that American investors can use to invest in the development of Africa and gave a more detailed explanation of each.  The funds were T. Rowe Price Africa & Middle East (TRAMX), iShares MSCI South Africa Index (NYSE: EZA), and SPDR S&P Emerging Middle East & Africa (AMEX: GAF).  These are not for widows and orphans, nor are they for the chicken-hearted.  As more and more opportunities arise for US investors to invest in Africa, we’ll be covering it.

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Jon C. Ogg
June 9, 2008