Traders on the floor of the Nairobi Securities Exchange. Stockbrokers have protested against move award a single agent a Sh70 million contract in the sale of Kenya Airways rights issue. FILE
Stockbrokers have protested over the award of a Sh70 million deal to buy Kenya Airways (KQ) rights shares on behalf of the Treasury to a single investment bank, arguing that the contract should have been tendered through competitive bidding.
The amount is part of the Sh300 million brokerage commission that stockbrokers are set to receive for their services as selling agents in the Sh20.6 billion rights issue.
The Kenya Association of Stockbrokers and Investment Banks (Kasib) has written to the investment secretary Esther Koimett, complaining that the picking of an intermediary to buy the national carrier’s rights on behalf of the Treasury was shrouded in secrecy.
The Treasury owns 23 per cent of KQ shares, and the uptake of its full rights is expected to cost Sh70 million in brokerage commissions.
“We are unaware of any competitive tender process undertaken to procure the services of the submission of the provisional allotment letter (PAL) for the Kenya Airways rights issue on behalf government in accordance with the Public Procurement Act,” said the Kasib letter, which did not, however, name the implied investment bank.
“In the absence of an open tender, the provisional allotment letter should be divided and allocated equally to all the licensed stockbrokers that have been appointed by the issuers,” added the letter.
Ms Koimett told the Business Daily that the stockbrokers’ complaints were invalid, arguing that it was KQ, as the issuer, that was paying the brokerage commissions and not the government.
“Any costs relating to the transaction are being met by Kenya Airways and we are not paying a cent. The issue of subdividing or procuring the PAL services competitively, therefore, does not arise on the side of the government,” she said.
James Wangunyu, the managing director of Standard Investment Bank (SIB), which is the lead sponsoring stockbroker for the KQ share sale, however, differed with the position taken by Kasib.
Mr Wangunyu said that the document used by shareholders to take up their rights, which is technically called a provisional allotment letter, could not be split as the stockbrokers were demanding.
“It is a misconceived letter. You cannot expect that the PAL should be subdivided to everyone, because only one broker can get it. We are fighting to see who will get it and we have not signed any contract,” he said.
As the lead sponsoring stockbroker, SIB is in charge of advising and marketing the issue to ensure that it is successful in raising the minimum funds – 70 per cent of the total issue – as specified in the information memorandum.
The association has, however, argued that the PAL is a separate service from the advisory services provided by the transaction adviser and the sponsoring broker and should, therefore, have been sourced competitively.
The upshot of its position is that the firm acting as the lead sponsoring broker in the offer should not get the PAL for government share transactions automatically, and these should be tendered competitively.
Provisional allotment
“In our opinion, where the Government of Kenya is concerned, the selection of this stockbroker(s) for the submission of the provisional allotment letter should be fair and in accordance with the public procurement rules,” said the association in the letter jointly signed by chief executive Willie Njoroge and chairman John Kirimi.
Previously, transaction advisers handled the PAL on behalf of the government, but this role has been separated in the KQ issue. CFC Stanbic Financial Services is the lead transaction adviser.
Dyer & Blair Investment Bank and Morgan Stanley, who were the joint lead transaction advisers for the Safaricom IPO, earned commissions amounting to millions of shillings in brokerage services from their control of the PAL.
The government sold shares worth Sh51 billion, amounting to an estimated brokerage fee of Sh750 million shared by the two brokerage houses.
