Vodacom’s Safaricom stake purchase struck down by Kenyan court
2 min readKenya’s High Court invalidated the government’s sale of a stake in East Africa’s biggest mobile-network operator to Vodacom Group, saying it was unconstitutional.
The court ordered the 15% stake in Safaricom Plc to be returned to the government, which may mean Kenya’s cash-strapped state would have to refund about $1.9 billion it’s already received for it.
Read: Vodacom cuts dividend payout ratio
The sale violated public finance management laws and didn’t fully comply with a requirement for public participation, judges Francis Gikonyo, Roselyne Aburili and Tabitha Ouya said in a ruling handed down in the capital, Nairobi, on Tuesday.
Safaricoms headquarters in Nairobi, Kenyas capital.
“The divestiture in question was undertaken and procured in contravention of the constitution and the law. It was therefore invalid, null, and void,” they said. “The 15% shares are hereby restored to the government of Kenya”
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Vodacom shares fell nearly 4%, the most since July 27, in Johannesburg trading after the ruling before retracing losses. Safaricom shares jumped as much as 2.2% during Kenya’s trading session.
Critical transactional documents such as the share-purchase agreement and a dividend rights purchase pact weren’t disclosed for public scrutiny, while the state didn’t explain in court why it settled on Vodacom as a buyer without a competitive selection process, the judges said.
In addition, the upfront monetisation of future dividends violated the constitution by disenfranchising citizens and the transfer of control of a strategic asset to a foreign shareholder threatened national security, they ruled.
“The divestiture involved the acquisition of effective control,” the ruling states. “It was a takeover. This detail of information was not disclosed to the public.”
Read: Vodacom Kenya unit posts record profit, cuts Ethiopia losses
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Vodacom, South Africa’s largest wireless carrier, agreed to buy an additional stake in Safaricom from the Kenyan government in December, increasing its shareholding to about 55% from almost 40%. The Kenyan Treasury’s interest was reduced to 20%.
The court said the parties didn’t apply for exemption from takeover requirements and there was no evidence that the Competition Authority approved the transaction. Transaction advisory services were also procured from KCB Investment Bank in contravention of the nation’s laws.
The sale raised about 204.3 billion shillings ($1.6 billion), along with an additional 40.2 billion shillings from the securitisation of future dividends.
President William Ruto’s administration is privatising state assets to raise project financing needed to fire up the $141 billion economy. His administration has a $39-billion infrastructure pipeline that includes railways, airport upgrades, roads, power lines, dams and irrigation projects that he says will create jobs and cut transport and energy costs.
The build out will be partly funded by cash raised from the sale of assets including Kenya Pipeline and co-investment from the private sector, according to Ruto.
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