The winds of change are blowing through Kenya's financial landscape, and even the seemingly untouchable giant, Safaricom, isn't immune. In a move that's sending ripples through the economic sphere, the Kenyan government is reportedly gearing up to sell off a portion of its significant 34.9% stake in the telecommunications behemoth. Why the sudden shift? Well, it all boils down to a rather pressing need: to inject a cool $1.1 billion (that's a hefty KES 149 billion!) into the public coffers.
Think of it as a strategic financial maneuver to plug a hole in the nation's finances without resorting to the politically unpopular route of introducing new taxes during these economically challenging times. This planned transaction, anticipated to materialize before the curtain closes on the 2025/26 fiscal year, would mark the government's most substantial divestiture in nearly two decades. It's quite the U-turn, considering their previous reluctance to part ways with shares in the undeniably profitable Safaricom.
So, who might be lining up to grab a slice of this telecom titan? Experts suggest that this sale could open the floodgates for Africa-focused institutional investors and private equity funds, many of whom are actively prowling the continent for stable, cash-generating telecom assets with those oh-so-attractive strong margins. Imagine the feeding frenzy!
"There is talk that if we could offload more of our ownership of Safaricom, where we are likely to get the Sh149 billion through privatisation in the 2025/26 financial year," John Mbadi, the Treasury Cabinet Secretary, recently told the Business Daily, confirming the government's intentions.
Let's not forget just how much of a cash cow Safaricom truly is. Riding high on the success of its dominant mobile money platform, M-Pesa, and its ever-expanding data services, the company reported an impressive 11% jump in net profit in 2024, raking in a cool $540 million (KES 69.8 billion), including returns from its Ethiopian subsidiary. As a result, the Kenyan government pocketed a tidy $130.5 million (KES 16.8 billion) in earnings through dividends alone, thanks to its significant stake.
Kenya last dipped its toes into selling Safaricom shares way back in 2008 during its heavily oversubscribed IPO, which raked in $400.5 million (KES 51.75 billion) for a 25% stake. Fast forward to today, and the government's remaining 34.9% slice is valued at a hefty $2.1 billion (KES 280.5 billion) at the current share price of $0.15 (KES 19.9). While the Treasury hasn't spilled the beans on the exact method of offloading this stake, possibilities include a secondary public offering or an off-market block sale to those eager private investors.
Now, for a bit of background: privatization in Kenya hasn't exactly been a smooth ride. Political interference and bureaucratic hurdles have long stalled previous attempts. Since 2013, the Treasury's efforts to divest from various parastatals, including hotels, sugar companies, and airlines, have largely faltered, often due to the weight of losses and debts plaguing these entities after decades of, shall we say, less-than-stellar management.
However, the current situation feels different, driven by a more pressing urgency. With fewer appealing financing options on the table, the ever-increasing burden of debt repayments squeezing the national budget, and the very real possibility of a tax revolt from already strained Kenyans, the government finds itself with limited painless choices.
However, the current situation feels different, driven by a more pressing urgency. With fewer appealing financing options on the table, the ever-increasing burden of debt repayments squeezing the national budget, and the very real possibility of a tax revolt from already strained Kenyans, the government finds itself with limited painless choices.
The underlying catalyst for this Safaricom stake sale is the country's mounting debt obligations. Just looking back to the first eight months of the 2015/2016 fiscal year, Kenya shelled out a staggering $5.5 billion (KES 722 billion) on interest payments alone – that's more than half of the $10.8 billion (KES 1.4 trillion) it managed to collect in tax revenue during the same period!
Domestic debt was the biggest culprit, gobbling up $4.3 billion (KES 565.8 billion), while external creditors received $1.2 billion (KES 156.5 billion). Fast forward to the present, and interest costs are on track to potentially exceed a jaw-dropping $7.7 billion (KES 1 trillion) by the year's end. That's a colossal chunk of the national budget being swallowed by debt repayments.
Kenya's total public debt now stands at a hefty $88.5 billion (KES 11.4 trillion), a significant jump from the $67.3 billion (KES 8.7 trillion) it stood at when President William Ruto took office less than three years ago. This rapid accumulation of debt – a staggering $20.8 billion (KES 2.7 trillion) in under 36 months – has left the Treasury with few easy pathways forward.
With tax revenues underperforming expectations and little political appetite for further tax hikes that could ignite public discontent, selling stakes in profitable state assets like Safaricom has seemingly transitioned from an option to a fiscal necessity.
