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The East African : Mar 4rth 2017
EAC FINANCIAL INTEGRATION 12 NEWS The EastAfrican MARCH 4-10,2017 Vodacom IPO raises questions about region’s capital markets integration Expe≥ts condemn p≥otectionism, as the EAC is a f≥ee t≥ade ma≥ket A JOINT REPORT The EastAfrican T he integration of capital markets in East Africa faces a severe test with the expected listing of 86 telcos and mining companies at the Dar es salaam Stock Exchange (DSE), where only Tanzanians will be allowed to participate. The initial public offerings (IPOs) buck the recent trend where citizens of the five EAC member states – Burundi, Kenya, Rwanda, Tanzania and Uganda – were allowed to buy shares in the primary sale. This helped investors to acquire stakes in Stanbic Uganda, Crystal Telecoms in Rwanda and listings in the Growth and Enterprise Market (Gems) at the Nairobi Securities Exchange. Vodacom Tanzania is set to sell 560 million shares to the public this week, worth Tsh476 billion ($208.5 million) after receiving regulatory approvals but non-Tanzanians can only enter the counter when the shares start trading at the DSE. “The move by Tanzania to lock out investors from East African countries will slow down the integration of the regional capital markets,” said David K Gathaara, managing director of Baraka Capital, a brokerage firm operating in Rwanda and Uganda. Integration protocols “Tanzania has a right to pro- tect local investors in the primary market but, in the spirit of the East African integration protocols, it should have allowed other citizens from the region to participate in the IPO.” Tanzanian opposition leader Zitto Kabwe of ACT-Wazalendo said barring foreigners was not a good idea because of the tight liquidity in the market. “Research would establish ways to absorb local and foreign capital. I would suggest a limitation for foreigners to buy shares against local ones,” he said. He said barring foreigners would deny the economy foreign exchange and spawn backroom deals, where locals buy shares on behalf of foreigners. Rwanda’s Trade, Industry and East African Community Minister Francois Kanimba said the locking out of EAC investors from the IPO was in bad faith. “That is against the spirit of re- The move to lock out investors from East African countries will slow down integration” David K Gathaara M-Pesa ‘vulne≥able to money launde≥ing’ By KEVIN J KELLEY Special Correspondent KENYA’S MOBILE-MONEY network M-Pesa could be used by both domestic and international criminal operations to make illicit financial transactions, the US State Department has warned. The department’s latest annual re- port on money laundering worldwide describes Kenya as the financial hub of East Africa and “at the forefront of mobile banking.” About 159,000 mobile-money agents do business in Kenya, mostly through Safaricom’s M-Pesa system. The report notes that M-Shwari, Safaricom’s online banking service, has more than 10 million accounts. “These services remain vulnerable to money laundering activities,” the State Department said. The report cites difficulties in tracking and investigating suspicious transactions within Kenya’s mobile payment and banking systems. Stock traders at the Dar es Salaam Stock Exchange. Vodacom is preparing to offer shares on the bourse. Picture: File gional integration,” he said. The EAC Common Market Protocol provides for free movement of capital, labour, goods, and services. Rwanda gives East African in- vestors preference during flotations. East Africans have taken part in all the listings on the Rwandan bourse, starting with Bralirwa in 2010, Bank of Kigali the following year and Crystal Telecom in 2015. In the ongoing sale of government shares in I&M Bank through an IPO, Rwandans, Kenyans, South Sudanese, Ugandans, Burundians and Tanzanians are to share 60 per cent of the shares on offer. The IPO was to close last week, but has been extended to this week to allow salaried people to participate and to compensate for delays in printing of the prospectus. “Protectionism has no room as the EAC is a free trade market after each country signed the Common Market Protocol. Right now, we are working on a legal framework to remove all restrictions,” Mr Kanimba said. Deal makers say East Africans seeking to diversify risks by investing in different markets had started making inquiries about the profitable Tanzania’s telecoms sector. “The development in Tanzania is something you cannot forestall because it is in pursuit of their own economic agenda. However, we are still pursuing the regional integration agenda and this will not affect our aspirations,” said Geoffrey Odundo, chief executive of the Nairobi Securities Exchange. The listing of Vodacom shares FIRST TO COMPLY Last year, the government issued a directive requiring all telecommunication companies to list 25 per cent of their shares on the stock exchange by December 31, 2016. The mandatory listing directive was intended to promote local ownership of the telecommunication companies while boosting transparency in financial accounting and revenue accountability in the apparently lucrative business. All the major telcos complied at the DSE is in compliance with the Electronic and Postal Communications Act, 2010 giving Tanzanians the right to buy 25 per cent of the shares of telecommunication companies as an empowerment strategy. The $208.5 million worth of shares is the biggest offer ever made in the history of the DSE. The IPO is expected to take six weeks from March 6, according to the Capital Markets and Securities Authority (CMSA), which last week approved the prospectus of Vodacom Tanzania. Some key stakeholders antici- pate high demand for the IPO. Raphael Masumbuko, chief executive officer of Zan Securities, said the IPO is likely to be oversubscribed due to the reputation of the company. “People from all walks of life have been waiting for this. We have been under constant pressure to announce when the subscription will start,” he said. Moremi Marwa, the DSE chief executive officer, said the market had recently been performing poorly due to withholding of funds by investors awaiting the Vodacom IPO. The DSE has a market capi- talisation of around $9 billion while total market capitalisation for all the telcos amounts to $2.5 billion. Vodacom Tanzania is the market leader, controlling 31 per cent of the market in voice business and 42 per cent of mobile money, through its M-Pesa platform. The company has 12.4 million active subscribers, followed by Tigo with 11.6 million and Airtel’s 10.3 million. The other telcos are Halotel, which has 2.7 million subscribers, Zantel (1.4 million), Smart (881, 756) and Tanzania Telecommunications Company Ltd (304,058). By Asterius Banzi and Kabona Esiara A customer performs a transaction on the M-Pesa platform. Picture: File with the directive by submitting their prospectuses to the CMSA or getting in contact with the authority before the deadline. Vodacom becomes the first to float shares on the bourse. The CMSA said recently that it was working on the prospectuses submitted by other telcos, adding that it had advised Tigo to resolve an ownership dispute before it can go ahead with the process. Airtel’s prospectus was returned for improvements. Lack of enforcement The 203-page global survey by the State Department’s Bureau for International Narcotics and Law Enforcement Affairs also points to a “lack of rigorous enforcement in this sector, coupled with inadequate reporting” by unnamed entities. Another weakness, the report adds, is the poor protection of confidentiality in the process of obtaining court orders allowing the police to demand bank records or seize accounts. Investigators are required to present judges with evidence linking deposits to criminal violations. But, because “the confidentiality of this process is not well maintained,” account holders can be tipped off to police activity and thus enabled to move their assets or contest court orders, the report says. Money laundering in Kenya also takes place through “thriving unregulated networks of hawaladars and other unlicensed remittance systems,” the US adds. These operations “lack transparency and facilitate cash-based, unreported transfers that the government cannot track,” according to the report.
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