Huge blow to Vodacom

Kenya’s High Court invalidated the government’s sale of a stake in East Africa’s biggest mobile-network operator to Vodacom, saying it was unconstitutional.

The court ordered that the 15% stake in Safaricom 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.

The sale violated public finance management laws and didn’t fully comply with a requirement for public participation, the three-judge bench of Francis Gikonyo, Roselyne Aburili and Tabitha Ouya said on Tuesday in the capital, Nairobi.

“The divestiture in question was undertaken and procured in contravention of the constitution and the law. It was therefore invalid, null, and void,” the judges said in their ruling.

Critical transactional documents, such as the share-purchase agreement and a dividend rights purchase pact, weren’t disclosed for public scrutiny.

The state didn’t explain in court why it settled on Vodacom without a competitive selection process, they 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,” according to the ruling. “It was a takeover. This detail of information was not disclosed to the public.”

Vodacom, South Africa’s largest wireless carrier, agreed to buy an additional stake from the Kenyan government in December, increasing its shareholding to about 55% from almost 40%. The Kenyan Treasury’s stake reduces 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.