Treasury faces Sh245b refund bill in bungled Safaricom shares sale

President William Ruto’s cash-strapped government faces the prospect of refunding the Sh245 billion that it earned from the partial sale of its 15 per cent shareholding to Vodacom Group after the High Court nullified the sale in a ruling on Tuesday.

The court said the transaction was not subjected to adequate public participation and also lacked transparency, finding it to have been done in contravention of the Constitution and the law.

The court further ordered the 15 per cent stake be restored to the government.

The National Treasury yesterday said it would “pursue a vigorous appeal”. Vodacom too said it would appeal the court’s decision and also ask the court for a stay as the appeal is heard and determined.

Kenya sold the stake to Vodacom in a transaction that was concluded on June 30 this year.

The proceeds were used as seed capital for the National Infrastructure Fund (NIF), the State-run investment vehicle that the government expects will raise Sh5 trillion to build mega projects over the next decade.

Following the transaction, Vodacom became the majority shareholder with a 55 per cent stake, while Kenya’s stake was diluted to 20 per cent from 35 per cent. The balance of 25 per cent is held by retail and institutional investors.

In the transaction, Vodacom, Vodafone’s South African subsidiary, paid Sh204 billion and also paid another Sh40.2 billion to buy the government's right to receive future Safaricom dividends.

Treasury Cabinet Secretary John Mbadi yesterday said the government had followed the required rules, including taking views from Kenyans, which was one of the concerns activists had raised when they lodged the case in court. He further said the case had followed the law.

“The National Treasury will pursue this appeal vigorously,” said Mbadi, adding that the Ministry was confident that the process was in line with prudent financial management and that the Ministry intended “to make that case fully on appeal”.

“The divestiture was conceived, developed and presented to Cabinet and National Assembly as a considered fiscal measure, structured to unlock value for the exchequer while safeguarding the strategic character of an institution that touches the daily lives of over 50 million Kenyans,” said Mbadi.

“Treasury is studying the full judgment closely and will shortly set out, through appropriate legal channels, the grounds on which we consider the court’s findings merit further judicial review.”

“We do not accept that the safeguards built into this transaction, including the protections extended to Safaricom employees, dealers and business partners, amounted to constitutional and procedural failures as the court asserted.

He further noted that the government had undertaken adequate public participation, which he said was done by different entities including the National Treasury and Parliament.

“I dare say that the executive led in doing public participation – if there is one transaction that I feel confident that we did public participation on is this particular divestiture,”

Vodacom had on Tuesday told Bloomberg that it would appeal the decision.

“As interim steps, Vodacom will lodge an appeal against today’s court decision with the Court of Appeal and will also apply for stay pending the determination of the appeal,” the company said.

Safaricom said it is reading the judgement and the impact it would have on its operations but also noted that the transaction had been concluded: “following the lifting of conservatory orders by the Court of Appeal and the fulfilment of relevant conditions precedent”.

“Safaricom is reviewing the judgment and its implications. Given that the matter remains subject to legal processes, further updates will be provided in due course and as appropriate,” said Safaricom in a statement.

Other than failure to consult Kenyans on the sale, the three-judge bench in the ruling also said the government failed to disclose key information about the transaction and that it had engaged in an arbitrary pricing process.

The judges also faulted Treasury’s handling of the Sh245 billion it got from the sale of the 15 per cent stake, noting that the government’s plans for the money were too broad and not tied to specific projects.

Activists, including Tony Gachoka alongside Fredrick Ogola and Samuel Kahara Macharia, had lodged the constitutional petition seeking to stop the sale of the telco, arguing that the government had not undertaken public participation.

They also noted that the company’s stock was undervalued and that it was of strategic importance to Kenya.

Wiper party leader, Kalonzo Musyoka, dismissed the process that cleared the transaction, including the Parliamentary approval, as a rubber-stamp that now stands quashed by the court.

“This is not merely a legal victory. It is a declaration that Kenya's sovereignty is not for sale,” said Musyoka, who was the lead counsel in the constitutional petition.

“Safaricom is not just another company. It is a national institution, conceived in Kenya, built by Kenyans and sustained every single day by the more than 30 million of our people who depend on it.... M-Pesa is not a mobile-money app to be traded like any other line item. It is the financial nervous system of this Republic and ... cannot change hands without the most rigorous safeguards.”

“Yesterday (Tuesday) the court affirmed that truth in law: Safaricom is a strategic national asset, one that carries the data of millions of citizens, moves the money of this economy and transmits our votes at election time. Such an entity cannot be handed to an outside interest in the dark.”

Other issues that the petitioners had raised in their petitions, which were initially lodged separately but merged in March, included Safaricom being a strategic asset for Kenya, which would then jeopardise the country’s strategic leverage over data infrastructure, money systems and competition policy in the telecommunications sector in the country, while exposing critical financial and security sectors in Kenya to foreign influence.

There were also concerns that the Sh34 per share that Vodacom paid was a gross undervaluation. At the time that the sale was mooted in December, Safaricom shares were trading at Sh28, with Treasury arguing that the Sh34 per share was a premium.

The price has since surged to Sh36. In August 2021, it hit an all-time high of Sh45.

Various commentators had argued that Safaricom’s share price should be anywhere between Sh40 and Sh80. Gachoka has, in past interviews, placed the value of the Safaricom share at Sh80, more than double the sale price of Sh34, which he argued meant that the government would have made another Sh250 billion.

Yesterday, Kalonzo said the government has never disclosed the valuation method used to arrive at the Sh34 price. "You cannot price what you refuse to value,” he said.

“If Safaricom’s true worth, and the standalone worth of M-Pesa, were properly reckoned, the value surrendered runs into hundreds of billions more.”

Earlier this year, Kiharu MP Ndindi Nyoro had also raised concerns about the pricing, noting the valuation was rather low but also the single sourcing of Vodacom as the buyer of the stake, as opposed to opening up the share sale and disposing of the stake through a competitive process.

“Safaricom was undervalued. However much you shout, history will judge you wrongly that you sold Safaricom shares, which are the property of Kenyans, for a wrong price... history books will be written and the verdict will be that you sold Kenyans,” Nyoro said in February.

Following the ruling on Tuesday, Nyoro said that those who took the money must now refund it and have the 15 per cent stake restored to the government. He further said the government should sell the stake to Kenyans who are ready to buy it and the state should sell it to foreigners.