Roach said he is optimistic about Taiwan's economic prospects based on its fairly good macroeconomic economic performance in terms of sustainable economic growth rate and price stabilization.

He also cited the new government's economic policies as another reason to be optimistic, saying that it would improve Taiwan's competitiveness, according to Chu.

Roach said Morgan Stanley's investment in Taiwan has reached US$1 billion and will continue to expand, Chu said.

The global financial company's investment is mainly in the banking and financial service sector due primarily to the low price-earnings ratio and low risk in the industry.

According to Chu, Roach praised the government for disclosing details of its investment in the two troubled U.S. mortgage lenders, Fannie Mae and Freddie Mac, earlier in the week, a move Roach said had greatly minimalized the impact of the subprime mortgage meltdown on the country, compared with other Asian nations.

Meanwhile, Roach said Taiwan is a low-risk investment area in terms of housing investment, as real estate prices in the country did not begin to surge until very recently. As a result, the risk of investing in Taiwan's banking sector is also low, he said.

In view of the fact that Taiwan's technology industry has readied itself to make inroads into the global market with its sound fundamentals, Roach said, Morgan Stanley is interested in investing in the sector.

Anticipating a growing demand for consumer goods, Roach said, his company also attached great importance of Taiwan's consumer products industry because the top three largest foodstuff companies in China are all operated by Taiwanese.

The chairman also saw great potential in the government's public construction plans and the mass media industry, Chu noted.

However, Roach indicated that many areas, such as over-competitiveness in the financial industry, the high proportion of state-run enterprises, high tax rate on overseas income and low demand for loans, need to be addressed in the interest of Taiwan's economic development.

In addition to Chu and Chiu, Council for Economic Planning and Development Chairman Chen Tain-jy, Financial Supervisory Commission Vice Chairman Lee Jih-chu, Central Bank Deputy Governor Yang Chin-lung and many others also attended the meeting.

(CNA)

The broker noted its analysis indicates significantly higher upside risk as it is close to the low point in the earnings downgrade cycle. It sees no debt liquidity issues and expects Trinity to trade comfortably within the terms of its existing and new debt facilities.

Morgan Stanley said it also expects Trinity would be a major beneficiary of a rally in equity markets but noted sustained outperformance requires greater forecast stability.

tf.TFN-Europe_newsdesk@thomson.com tw/ms1

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MMMM

But 38 days after the Safaricom share was listed at the NSE, the dreams for windfall profits are rapidly fading for many of these short term investors, as the mobile company's share price appears set on a course of a steady decline since the first week of trading.

From a high of Sh8.15 on its June 9 debut at the NSE, the Safaricom share price has known only one movement - south. On Tuesday it touched a new low of Sh6.55 per share, just Sh1.55 above its IPO price of Sh5 per share.

It is unlike what most investors had expected and fresh questions are now being raised over what is actually depressing the share price of a company, which the most influential analysts and sophisticated investors appears to agree has all the fundamentals right.

Safaricom is the region's most profitable company, having returned a pre-tax profit of Sh19 billion last year. It is also the dominant mobile phone company in the country, enjoying a subscriber base of over 11 million against its closest competitor's 2.1 million subscribers.

According to analysts, two theories could explain why the Safaricom share price is falling.

First, is the fact that investors are getting worried over Safaricom's earnings outlook given the fact that France Telecom and Econet Wireless are planning to launch their mobile phone services in September.

The entry of these two firms at a time when Celtel Kenya is fighting Safaricom's stranglehold over the market could make life tougher in the industry. Already, it is clear from Safaricom's latest earnings release that the it managed to race ahead of its rival Safaricom by sacrificing higher profit margins to retain and attract new customers.

According to Safaricom's chief financial officer Les Baillie in a recent interview with Business Daily, that is why the firm chose to go for a lower earnings before taxation, interest charges, depreciation and amortization (Ebitda) margin, which measures the raw potential of a business to produce profits and cash.

If this is seen in the light of the average revenue per user (ARPU), another important acronym that shows how much sales the company generates per customer shows that the firm-and indeed the industry-is starting to dig at the bottom of the pool with every new customer signed up.

The presence of three tough competitors, high inflation and an economy generating jobless growth is unlikely to improve the earnings outlook so much to justify further appreciation in the share price. Sophisticated investors are therefore convinced that the price is right for Safaricom and they just want to take their profit and run to other opportunities.

This is what is happening and probably why the share price might remain depressed for some time, which leads to the second theory. An analysis of the trading patterns on the NSE shows that Safaricom is dominating all the action and by the sheer volume of the money involved, this listing has transformed the market. A closer look however reveals a more disturbing trend.

Most of the transaction volume is sell orders by the foreign investors who were expected to cushion the Safaricom share price from excessive price fluctuations-that are typical when local retail investors corner the market for a particular security. This is the reason the government decided to allocate two billion shares to foreigners despite the huge local demand that saw nearly Sh100 billion returned to Kenyans.

Morgan Stanley angle

A closer analysis of who was allocated the foreign quota shows that a motley collection of some of the biggest hedge funds based in Europe got 65 per cent of the shares and then Morgan Stanley International, the government's adviser on how to sell these shares to foreigners, kept 41 per cent of the shares in its books.

It is unlikely that an investment bank would want to keep such as a big stake in a customer's deals as an investment. Though the company says that it holds some of these shares for its customers, insiders in the market point out that Morgan Stanley could have been allowed to keep such a huge stake worth 815 million shares as a way of paying itself for advising on the deal, after its local partner, Dyer & Blair Investment Bank bid 0.05 cents for the work in order to win.

This however threw the transaction into a crisis at the beginning because Morgan Stanley wanted a fair share of fees from this transaction that sold Kenya the government's 25 per cent stake in Safaricom for Sh51 billion.

If this is the case, Morgan Stanley could be holding a huge block of shares that it must sell wisely at a profit in order to make money. However, the strategy for selling this block of shares could backfire if other foreign hedge funds and institutional investors decide to take profits at the same time. The pattern of huge foreign sales, almost non-existent foreign buys shows that something akin to this is happening.

A steady supply of Safaricom shares, apparently from foreign investors, has created an oversupply of the stock, depressing the market price and raising eyebrows as to what could be behind the alarming slide in market price. So far statistics show that over 2.2 billion Safaricom shares valued at over Sh16.5 billion have traded since June 9, when the company's shares were floated at the NSE.

Data on foreign investor sales and purchases on the Safaricom counter could not be obtained from the Central Depository and Settlement Corporation (CDSC), but joint lead transaction advisor to the IPO Dyer & Blair's co-managing director, Mohammed Hassan, said that foreigners accounted for up to 30 per cent of daily trading on the Safaricom counter.

"We are just seeing a constant supply of shares which has really dampened the market price, we suspect there are some foreign investors who are exiting the market in a big way," said a top stockbroker who did not want to be named.

Fingers are now pointing to the foreign investors pool that benefited from a special reservation of two billion shares, especially after news emerged that Morgan Stanley Investment Bank, the IPO joint lead transaction advisors who were in charge of setting the IPO price in the international pool and allotting shares to all international applicants took up close to half of the shares that were reserved for foreign investors.

Statistics obtained from Image Registrars, the company that keeps Safaricom's register of shareholders, shows that Morgan Stanley International PLC took up 814.3 million shares in their own name, and a further nine million shares were taken up by its affiliate company, Morgan Stanley Investment Management, New York.

The London based investment bank single handedly determined the IPO offer price for international applicants through book building, a form of auction process through which an equilibrium price is discovered based on bids received from potential buyers.

Only Morgan Stanley and Treasury, as the issuers of the shares, had access to the information that was used to set Safaricom's international pool IPO price at Sh5.50 per share, a premium of approximately 10 per cent over the estimated fair book value of Safaricom at the time of the issue.

Contacted for comment, Morgan Stanley in a brief statement said that they did not buy any shares as principals, but on behalf of their third party clients.

"Morgan Stanley did not purchase any shares as principal in the Safaricom IPO. Any shares under the name of Morgan Stanley are held on behalf of, and beneficially owned by, our third party clients," said a corporate communications executive director, Mr Michael Wang.

The international investment bank with major operations in developed world markets however declined to send to us a list of the clients on whose behalf they bought the shares.

"Morgan Stanley, as a standard practice, does not and will not disclose the identities of investor clients in such transactions," read the statement signed by Mr Wang.

The prospectus restricted Morgan Stanley and other IPO placing agents to taking orders only from institutional investors in the international pool, and such applicants would ordinarily not demand to have their identity concealed by buying shares through nominee accounts.

"Orders can only be taken from institutional investors in jurisdictions where the offer shares are permitted to be sold by a relevant person or entity," reads a part of the prospectus.

The rationale behind allowing only institutional investors to participate in the offer was to ensure price stability in Safaricom's 'after market.'

"The global coordinator seeks to build a book of demand consisting of a mix of investors who are likely to be long term holders of the securities or providers of liquidity," reads the IPO prospectus "The coordinator will prepare an allocation recommendation with regards to the International Pool allocation, in order to create an optimal international shareholder base and promote a favourable aftermarket in the stock."

The prospectus defines institutional investors for purposes of the foreign investor applicants in the IPO as "a body corporate including a financial institution, collective investment scheme, fund manager, dealer or other body corporate whose ordinary business includes the management or investment of funds whether as principal or on behalf of clients."

Analysts are therefore questioning why the foreign investors appear to be predominant in the market, yet the aim was to incorporate only those with at least a medium to long-term view.

"Even 30 per cent participation on a daily basis is high, given that the foreigners were allotted only 20 per cent of the shares at IPO level, and these were supposed to be institutional investors who ordinarily take long term positions," says Standard Investment Bank executive director, Job Kihumba.

Local investment bank Kestrel Capital has been cited as one of the brokers together with Dyer and Blair that have facilitated most of the foreign investors' offloading of the shares.

An official at the firm however said that foreign investors were selling and buying the Safaricom shares in almost equal measure.

"It is true we specialize in foreign and local institutional business, but we have seen foreign sales of the Safaricom shares that almost match foreign buys," said a Kestrel official who declined to be named.

Breaking the rules

Morgan Stanley's assertion that it bought shares on behalf of its clients will also appear to be in contradiction of the Capital Markets Authority's (CMA) own rules regarding buying of shares for third parties during the IPO.

CMA barred local investment banks from buying shares in their own name but on behalf of their clients during the Safaricom IPO, in a move that was criticized by some players as intended on locking out some who traditionally applied for shares in their name during IPOs for later re-allocation to their high value clients.

In a letter sent by the then acting CMA chief executive Ms Stella Kilonzo just days to closure of the application period, the CEO warned that all allocations would be investigated after the IPO to establish compliance with the capital markets regulations.

"Upon allotment of the shares by Safaricom, the authority will examine the allocations to investment banks specifically to confirm compliance with capital market regulations," said Mr Kilonzo in her statement to investment banks.

However, Mr Mohammed defended the purchase of shares by Morgan Stanley on behalf of third parties, saying that it facilitated participation by individuals who could otherwise have not purchased the shares directly if their identity was known.

The CMA circular was meant to ensure that the spirit of the law was maintained in encouraging transparency and keeping individuals who wanted to benefit from a public asset without disclosing their identities.

"The action by Morgan Stanley to open custodial accounts provided the infrastructure for some investors who could otherwise not have participated in the offer to buy the shares," said Mr Hassan.

Mr Hassan said that about 93 foreign investors participated in the Safaricom IPO, but only about 53 were included in the list provided to us by Image Registrars, meaning that the other 40 could be those included in the list in Morgan Stanley's name.

The reservation of 3.5 billion shares for foreigners, equivalent to 35 per cent of the 10 billion shares on sale at the IPO, proved to be a controversial issue immediately it was announced by the joint lead transaction advisors.

Eventually 15 per cent of the shares were clawed back to the domestic pool after the offer recorded an oversubscription of over 400 per cent, leaving a reservation of 2 billion shares for international applicants.

But critics still question why foreign applicants put in a premium of only 10 per cent above the IPO price of Sh5, yet the IPO offer price was discounted by Government by up to 14 per cent of the mobile company's fair book value at the time of the issue.

Investment Secretary Esther Koimett said at the launch of the IPO that the Sh5 per share IPO price reflected a 14 per cent discount on Safaricom's valuation of Sh200 billion at the time of the offer.

Foreign investors' IPO price of Sh5.50, which was arrived at through a book building process, falls short of what could have been the fair non-discounted offer price of about Sh5.70 per share.

While announcing the international applicants' IPO price of Sh5.50, the investment secretary hailed it as one of the 'highest' premiums ever realized, through the international book building process. "This represents a 10 per cent premium on the domestic pool's offering price, an unprecedented structure and premium level when compared to past transactions around the world," said a statement released through the IPO's publicists.

Those opposed to a special reservation of shares for foreigners argued that Safaricom is a public company that was founded using taxpayers' money, and locals should therefore have been given the first priority to own the company while foreigners should only buy into the company in the secondary market.

The Government had a 60 per cent shareholding in Safaricom prior to the IPO, while UK Company Vodafone owns 40 per cent of the telecommunications company that was carved out of fixed lines operator Telkom Kenya in the late 1990s.

Observers also argue that the foreigners should have at least matched the 14 per cent IPO discount to justify the reservation of shares at the expense of locals.

"The market is questioning the 10 per cent premium which even falls short of the IPO discount rate," said one investment banker who did not want to be named.

Questions have also been raised with regard to the secrecy of the book building process, which was controlled solely by Morgan Stanley as the global coordinator for the IPO.

The daily bids filed by international applicants during the book building process were only available to Morgan Stanley and Treasury, through what was referred to as a "blind" auction.

Cutting corners

Involvement of foreign investors in the Safaricom IPO also proved to be both an emotive and political issue, with a section of politicians alleging that the significant allocation for foreign applicants was meant to facilitate the purchase of shares by locals masquerading as international applicants.

The then finance minister Amos Kimunya and NSE chairman Jimnah Mbaru, who also owns Dyer and Blair, maintained that the involvement of foreign investors would open up the country's capital markets to international investors.

"If you want foreign investors to participate in the local capital markets you invite them to sample the juicy offer, so that in future they also look out for less attractive offers in the market," said Mr Mbaru at a luncheon hosted by the Nairobi Central Business District Association in April.

Critics have questioned the business sense behind the zero bids for tenders during IPOs like Morgan Stanley's and Dyer and Blair's in the Safaricom IPO, saying that any rational business person would normally seek fair compensation for services offered. It also prevents the State from getting competitive bids as bidders concentrate on gimmicks to win a contract and the system works in the favour of the big players.

Commenting on his appointment Aaron Ford said, "Carl's appointment is timely as we continue to aggressively grow our institutional client business with our long only effort and our recent acquisition of Bank of America's prime brokerage unit. Carl's insight, expertise, and leadership coupled with our award winning derivatives sales and trading teams will help BNP Paribas deliver the best derivatives strategy product in the marketplace."

In 2008, BNP Paribas was named 'Structured Products House of the Year' by Risk magazine and in 2007, was named 'Equity Derivatives House of the Year' also by Risk magazine'. North American awards include 'North American Structured Products House of the Year' by Structured Products Magazine and 'Best Equity Derivatives house in North America' by Global Finance magazine.

About BNP Paribas Corporate and Investment Banking

BNP Paribas Corporate and Investment banking division (http://cib.bnpparibas.com/) has almost 16,000 employees, deployed in 53 countries around the world. BNP Paribas CIB excels in three fundamental sectors in particular: Derivatives - it is one of the leading global players in rates, credit, forex, commodity and equity derivatives

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About BNP Paribas

BNP Paribas (www.bnpparibas.com) is a European leader in global banking and financial services and is one of the 4 strongest banks in the world according to Standard & Poor's. The group is present in over 85 countries, with more than 168,000 employees, including 129,500 in Europe. The group holds key positions in three major segments: Corporate and Investment Banking, Asset Management & Services and Retail Banking. Present throughout Europe in all of its business lines, the bank's two domestic markets in retail banking are France and Italy. BNP Paribas also has a significant presence in the United States and strong positions in Asia and the emerging markets.

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