By Duncan Miriri NAIROBI (Reuters) - After months of gradual decline, Kenya's stock market is expected to climb as funds tied down by the region's biggest share issue in Safaricom return to the bourse in search of bargain stocks, analysts said. The Nairobi Stock Exchange's main 20-share index dropped 5.8 percent to 5,090.36 points last Thursday from the most recent high of 5,405.38 points on March 6, days before the government unveiled the terms of its biggest flotation yet. But after the government announced the initial public offer in the country's most profitable company had been over-subscribed 532 percent, the index has since changed direction and closed Tuesday's trade at 5,253.33 points. Shares in Safaricom, to trade as after June 9, will constitute a hefty 40 percent of total shares at the bourse. Britain's Vodafone holds 40 percent of the firm. That means banks will be returning funds to thousands of investors in coming days. "The market has been starved of liquidity over the last few weeks, so we could easily see a 5-10 percent increase in the NSE index in the month of June," said Sunil Sanger, general manager of CFC Financial Services. One bullish player, Fred Mweni, who is managing director of Tsavo Securities, saw the index rising to 7,000 by year's end. But a Reuters poll of 11 experts in April estimated on average that the index would go up to 5,940 points by then. The mobile phone provider commands over 80 percent of the Kenyan market with 10.2 million subscribers. Analysts say its prospects are still very good despite the entry of two new providers later this year. With only 33 percent of Kenyans holding mobile phones, analysts say Safaricom's strategy to target even those with very little disposable cash and its listing on the bourse, will endear it to many loyal customers now turned shareholders. Some stockbrokers attributed the pre-IPO fall of the index to investors being unwilling to offload shares in a bearish market. "For the past one month, the market was dry of money because of the Safaricom IPO, people didn't have money so there was reduced activity in the market," said Felix Busienei, a senior officer at Suntra Investment Bank. The government has offloaded a 25 percent stake, or 10 billion shares, to raise 51.75 billion shillings, valuing the company at about $3.3 billion. The issue however attracted demand of more than 226 billion shillings. Refunds of over 100 billion shillings are expected to be returned to investors in the second week of June. "Once the refunds start coming through, some of this money will obviously stay in the market and we will see the index moving up," said Sanger. Retail investors were allocated 21 percent of their applications, institutional bodies got 31 percent and foreigners received 15 percent, buying the shares at a slight premium. Buyers from neighbouring Burundi, Rwanda and Uganda, which are members of the regional East African Community, also took part in the issue, further bossting demand. The NSE index has had a good run in recent years, hitting an all time high of 6,161.46 in January 2007 on the back of a booming economy. But violence that followed President Mwai Kibaki's disputed re-election last December pull it back to a low of 4,576.31 on January 29. The clashes killed at least 1,300 people and displaced another 350,000. Two listed firms have issued profit warnings for 2008 due to the effects of that fighting and escalating production costs wrought by high energy prices. | 
