Ndindi Nyoro seeks annulment of Safaricom stake sale

Ndindi Nyoro, a prominent Kenyan legislator, has called for the annulment of the government's recent sale of a stake in Safaricom PLC, alleging deliberate share price manipulation and a lack of transparency in the transaction. Nyoro claims the shares were undervalued, leading to significant losses for taxpayers, and that the sale proceeded despite ongoing legal challenges. This development highlights critical issues concerning public asset disposal, market integrity, and governmental accountability under Kenya's legal framework, particularly the Privatization Act, 2023, and the Capital Markets Act, Cap 485A. The demand for annulment underscores the potential for judicial and regulatory scrutiny into the processes and valuations underpinning such high-profile state divestitures.

The recent call by Kiharu Member of Parliament Ndindi Nyoro for the annulment of the government's sale of its stake in Safaricom PLC has ignited a significant legal and public debate in Kenya. Nyoro has vehemently opposed the transaction, alleging that it was marred by deliberate share price manipulation and that the shares were sold at an 'underwhelmingly low' price, potentially costing Kenyan taxpayers billions of shillings. He further questioned the legality of proceeding with the sale amidst active court processes challenging the transaction.

This development is not merely a political statement but raises profound legal questions regarding the transparency, accountability, and adherence to statutory frameworks governing the disposal of public assets and the integrity of capital markets in Kenya. Safaricom, being a strategic national asset, places its divestiture under intense public and legal scrutiny. This article will delve into the relevant legal and regulatory landscape in Kenya, examining the grounds upon which such an annulment could be sought, with a particular focus on allegations of market manipulation and procedural impropriety in government asset sales.

The Government of Kenya has historically held a significant stake in Safaricom PLC. Following an Initial Public Offering (IPO) in June 2008, the government's shareholding was reduced from 60% to 35%. The recent transaction, which is the subject of contention, saw the government dispose of a 15% stake, consequently reducing its ownership to 20%, while Vodafone Kenya Limited became the majority shareholder with 55%.

The legal framework governing such divestitures is primarily anchored in the Privatization Act, 2023, which repealed and replaced the Privatization Act, 2005, and commenced on October 27, 2023. This Act mandates the Cabinet Secretary to the National Treasury to formulate a comprehensive privatization programme, subject to approval by the Cabinet and subsequently by the National Assembly. The Act also establishes the Privatization Authority to advise on and implement privatization policies and requires business and asset valuations by qualified persons for each privatization. Furthermore, the Public Procurement and Asset Disposal Act, 2015 (PPADA), which gives effect to Article 227 of the Constitution of Kenya, 2010, provides procedures for efficient public procurement and asset disposal by public entities, emphasizing principles of competition, integrity, fairness, transparency, and accountability.

Crucially, the Capital Markets Act, Cap 485A, provides the legal framework for regulating Kenya's capital markets, aiming to ensure transparency, fairness, and efficiency. This Act explicitly prohibits irregular trading activities, including market manipulation, which involves deliberately inflating or deflating the price of securities to create a false or misleading appearance of active trading. The Capital Markets Authority (CMA) is empowered under this Act to investigate and impose sanctions for such misconduct. Additionally, the Ethics and Anti-Corruption Commission Act, 2011, establishes the Ethics and Anti-Corruption Commission (EACC) with a mandate to combat and prevent corruption and economic crime, including conducting investigations on its own initiative or upon complaint.

Ndindi Nyoro's demand for the annulment of the Safaricom stake sale rests on two primary legal pillars: allegations of market manipulation and procedural impropriety. His claims that there was "deliberate share price manipulation and price suppression" over several months, leading to an undervaluation of the shares and a loss of over Ksh. 12 billion for taxpayers, directly invoke the prohibitions under the Capital Markets Act, Cap 485A. Section 32A and 33 of the Capital Markets Act prohibit insider trading and other market abuses, including market manipulation. The CMA has a statutory duty to ensure market integrity and can investigate such claims, as evidenced by past instances where the Central Bank of Kenya requested investigations into irregular trading activities.

The second pillar relates to procedural irregularities and a lack of transparency. Nyoro alleges that the shares were sold to the lowest bidder and that due process was not followed, further questioning the decision to proceed with the transaction despite an active court process challenging the sale. The Privatization Act, 2023, and the Public Procurement and Asset Disposal Act, 2015, both emphasize the need for transparent, competitive, and accountable processes that maximize value for the country in the disposal of public assets. While the government, through the National Treasury Cabinet Secretary, has asserted that extensive public participation was conducted and that the transaction complied with the rule of law, these claims are directly contradicted by Nyoro's assertions and public concerns raised during parliamentary consultations.

Legal avenues for challenging such a transaction primarily include judicial review under Article 47 of the Constitution of Kenya, 2010, and the Fair Administrative Action Act, 2015. These provisions allow for the review of administrative actions that are unlawful, unreasonable, or procedurally unfair. Grounds such as illegality (acting ultra vires), irrationality, procedural impropriety, and bad faith could be advanced. The Supreme Court of Kenya has, in recent jurisprudence, indicated a willingness to expand the scope of judicial review to, in certain circumstances, inquire into the merits of administrative decisions, moving beyond the traditional focus solely on process. This could be a critical factor if a court is persuaded that the alleged undervaluation and manipulation are so egregious as to render the decision irrational or in bad faith.

Furthermore, the EACC could initiate investigations into allegations of economic crime or corruption if the claims of undervaluation and procedural breaches suggest such misconduct. The National Assembly also retains significant oversight powers under Article 95 of the Constitution, including deliberating on issues of public concern and exercising oversight over state organs and national revenue. The ongoing court challenges, some of which have seen conservatory orders issued and subsequently lifted by the Court of Appeal, underscore the contentious nature of the sale and the legal complexities involved.

The challenge to the Safaricom stake sale by Ndindi Nyoro presents a multifaceted legal dilemma for the Kenyan government and its regulatory bodies. For legal practitioners, this case highlights the critical importance of meticulous adherence to the statutory frameworks governing public asset disposal, particularly the Privatization Act, 2023, the Public Procurement and Asset Disposal Act, 2015, and the Capital Markets Act, Cap 485A. Lawyers advising public entities on such transactions must ensure robust valuation processes, transparent procedures, and genuine public participation to withstand potential legal challenges.

Moving forward, practitioners should closely monitor any investigations initiated by the Capital Markets Authority or the Ethics and Anti-Corruption Commission into the allegations of market manipulation and economic crime. The outcome of any ongoing or future judicial review proceedings will also be pivotal in shaping the interpretation and application of administrative law principles in the context of state divestitures. This situation serves as a potent reminder of the need for unwavering commitment to good governance, transparency, and accountability in the management of public assets, not only to safeguard taxpayer interests but also to maintain investor confidence and the integrity of Kenya's capital markets.