1. Summary: The Kenyan government announced on March 3
its intention to sell 30% of the Kenya Electricity
Generating Company (KenGen), the country's dominant power
generating firm, through an initial public offering on the
Nairobi Stock Exchange (NSE). The majority of the offered
shares will be available to the public and to KenGen
employees in this the first IPO on the NSE in six years.
The enthusiasm that greeted the IPO announcement indicates
tremendous pent-up demand by the Kenyan public for
accessible investment products. While touted as a step
towards privatization, the government will still retain
decisive control over the parastatal after the IPO. The
sale should therefore be seen more as a means of raising
badly-needed cash for KenGen, and not necessarily as a way
to make the much-criticized parastatal more efficient in
generating a reliable and reasonably-priced supply of power
for the economy. End Summary.
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Who's Buying?
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2. Finance Minister Amos Kimunya on March 3 announced the
government's plan to offload 659.5 million shares, or 30%,
of KenGen to local investors through an IPO to be held
March 20 through April 12. 22.5 million shares will be
reserved for KenGen employees, and the remaining will be
available to the public, without distinction between
individual and institutional investors. According to
Kimuya, the GOK hopes that a wide range of small,
individual investors will participate. Initial indications
are that foreign investors will also be able to buy-in,
through local brokerages, but with some, yet-to-be-
announced limitations. The set share price is at Ksh11.90
(US$0.15) with a minimum investment of 500 shares, or about
US$82.
3. The Capital Markets Authority (CMA) that regulates NSE
activity will soon announce the process for applying to
purchase shares, and initial indications are that the
public is extremely interested. Banks and company-based
savings organizations are fielding a huge number of loan
requests from "average citizens" who want to participate.
According to Chairman and Chief Executive of the Dyer and
Blair Investment Bank Jimnah Mbaru, the offer price for the
shares makes KenGen initially one of the cheapest listed
stocks in Kenya, and he forecasts an oversubscription.
James Murigu of Suntra Investment Bank, one of the handlers
of the issue, believes all investors will have a fair
chance to purchase the issue.
4. KenGen's 1,500 employees will have access to 22.5
million shares, or 3.3% of the IPO, and can purchase up to
15,000 shares (worth about $2,460) each outside the public
sale. According to Ernest Nakenya Nadome, the Secretary
General of Kenya Electrical Trades Allied Workers' Union,
KenGen management has already approached a financial
institution to advance loans to employees to purchase the
shares. Employees are to be advanced loans equal to one
year's salary, repayable over five years. Nadome is
encouraging his members to purchase more shares outside the
allocation from the public issue.
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Who is KenGen?
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5. KenGen produces about 80% of Kenya's electricity, and
manages geothermal, hydroelectric, and thermal power
plants. Independent Power Producers account for about 18%
of the country's electricity output and the rest is
imported. KenGen, along with the monopoly electric
distribution parastatal Kenya Power and Light Company
(KPLC), are widely criticized for the unreliability and
high cost of the country's electricity supply.
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Comment: Good Story, But Questions
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6. The KenGen IPO looks like a good story. The immediate
positive reaction from the public clearly shows a
tremendous pent-up demand for small scale investment
opportunities. Moreover, if the IPO proceeds as expected,
it may well motivate the government to return to the NSE
for additional offerings - KPLC and the Kenya Ports
Authority being leading candidates. Other private
companies might also be motivated to raise capital by going
public.
7. But a number of questions remain. First, the GOK has
not made any announcement on what it plans to do with the
IPO proceeds, except noting that it will "diversify Kenya's
limited electric energy sources." It is well known that
KenGen has been searching for new investors to expand its
Olkaria geothermal power system. With regular rainfall
problems in recent years, and siltation of reservoirs,
Kenya's hydroelectric production is also in need of
significant new investment. This infusion of cash may also
make KenGen a more attractive and flexible partner for new
independent power producers. But the money has to be used
wisely and transparently, and past practices at Kenyan
parastatals suggest this is not a foregone conclusion.
8. Though the KenGen sale is being championed as an
example of privatization, the government will still
maintain firm control through the remaining 70%
shareholding. This gives the government ample room to go
back to the NSE to raise more capital while still
maintaining control over the parastatal. This begs the
question down the road of whether this sale will result in
KenGen itself becoming more competitive and efficient in
offering what the economy so badly needs: reliable and
reasonably priced electricity.
Bellamy
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