Safaricom plans to bar the use of retained earnings for share buybacks under proposed changes to its articles of association that will be tabled at its upcoming Annual General Meeting (AGM).
The telco, in a notice to shareholders ahead of the July 31 AGM, has proposed an amendment to Article 134 of its internal rules to redefine how directors can allocate company reserves. The proposal is part of the special business to be considered alongside routine agenda items.
Under the proposed changes, Safaricom’s directors will retain the discretion to set aside portions of profits as reserves before recommending dividends. However, the proposed amendment seeks to restrict the application of these reserves by barring their use in acquiring the company’s own shares.
“The directors may, before recommending any dividend… set aside out of the profits of the company such sums as they think proper as a reserve… applicable for any purpose to which the profits of the company may be properly applied… either be employed in the business of the company or be invested in the business of the company or be invested in such investments (other than shares of the company) as the directors may… think fit,” reads the AGM agenda.
Latest disclosures show Safaricom held Sh165.74 billion in retained earnings at the group level at the end of March 2026, compared with Sh256.74 billion at the company level. The retained earnings offer a rich buffer despite years of distributing about 80 percent of net profit to shareholders.
The company has never implemented a share buyback since it listed on the Nairobi Securities Exchange (NSE) in June 2008.
Kenya first introduced share buybacks through the Companies Act, 2015 but the Capital Markets Authority introduced regulations to guide the process in November 2021.
The effecting of buyback rules in late 2021 means Safaricom would not have used such a programme to support its share price when it traded below its Sh5 listing level for about five years after joining the Nairobi bourse in 2008.
SAFARICOM BY PATRICK ALUSHULA
Subsequently, Safaricom’s share price rallied and has traded at a major premium, leading the NSE in terms of market value.
The proposed amendments show that the reserves may only be deployed in the business or invested in instruments other than Safaricom’s own stock.
Directors will also continue to have the option of carrying forward undistributed profits where deemed prudent.
Share buybacks, which involve a company purchasing its own shares from the market, are typically used to return excess cash to shareholders in a tax-efficient process or to support share prices.
Stock repurchases have the effect of raising the stakes and earnings for continuing shareholders.
By reducing the volume of outstanding shares in the market, they are also likely to lift a company’s value, especially if the business remains profitable and continues to grow.
When a company buys part of its shares, remaining investors benefit through a higher claim on earnings and dividends without incurring any tax expense.
When they receive a dividend, however, they pay withholding taxes of between five percent and 15 percent (depending on residency status), unless they qualify for exemption.
Critics of share buybacks say this use of capital faces various major risks, including consuming a company’s cash when it may need funds for investment in operations.
A company may also buy back its shares when they are not cheap –as measured by the firm’s fundamentals. In this case, winners are shareholders offloading their stakes to the entity.
Use of stock repurchases is more widespread in developed markets where companies also pay dividends.
Stock repurchases have the effect of raising the stakes and earnings for continuing shareholders.
Photo credit: File I Nation Media Group
Safaricom buys shares from the open market to award senior executives, including the CEO, as part of their performance-based compensation package. The practice differs from share buyback, which is aimed at returning value to shareholders or supporting the stock price.
In Kenya, listed firms such as Nation Media Group and Centum Investment Company have executed share buybacks in recent years, while unlisted players such as Synergy Industrial Credit have also adopted the strategy.
Other companies, including Jubilee Holdings and Absa Bank Kenya, have amended their articles of association to create room for buybacks, signaling its widening appeal in the market.
However, Safaricom’s proposed restriction suggests a preference for more traditional capital allocation strategies, including reinvestment in the business and dividend distribution.
Formalisation of the restriction on use of retained earnings for share buybacks looks set to reinforce Safaricom’s dividend policy by ensuring the money is primarily directed towards business growth and shareholder payouts rather than share repurchase programmes.
Safaricom’s proposed resolution requires approval by shareholders at the AGM, where it will be considered as a special resolution. If adopted, the changes will guide future decisions on profit retention and reserve utilisation.
