KenGen’s bond result unravels Kenya’s inequality

Electricity producer KenGen on Wednesday announced that nearly the entire Sh26.5 billion it raised through the recently concluded public infrastructure bond came from Nairobi, Coast and Central provinces – in a revelation that economists say reflected the skewed distribution of wealth in the country.

The three provinces accounted for Sh26.4 billion of the total amount raised, highlighting the disparities that have long been blamed for the slow pace of social progress in some parts of the country.

Nairobi, Kenya’s commercial and administrative capital, accounted for Sh25 billion, the largest fraction of the total amount raised, leaving the remaining six provinces to share the 4.2 per cent of the cash raised.

“Although Nairobi province was dominant, accounting for nearly 77 per cent of the total applications, there was interest from Coast, Rift Valley, Central, Eastern, Nyanza, and Western,” said Eddy Njoroge, KenGen’s managing director. “Kenyans in the diaspora also applied for the KenGen PIBO with applications from Canada, USA, UK, Denmark, Netherlands and Singapore.”

Results of the KenGen PIBO echoed recent UNDP’s Human Development Report findings that Kenya is the most unequal country in East Africa with the poorest 10 per cent of the population holding less than two per cent of the wealth while the richest 10 per cent control about 40 per cent of the national wealth.

With fingers firmly pointing at the collapse of Kenya’s agriculture based rural economy and skewed distribution of resources by past governments for the high level of inequality, the latest figures are expected to inform ongoing debate about Agenda Four of the National Accord that was signed following last year’s post election turmoil that was among other things blamed on glaring levels wealth disparity.

Without the Sh22 billion that institutional investors forked out for a portion of the KenGen PIBO, investors in Nairobi accounted for Sh3 billion of the total amount raised, far ahead of second placed Coast province with Sh582 million.

Two years ago, the Kenya National Bureau of Statistics’ district based survey placed Nairobi at the top of the leader board with Sh220 billion in labour earnings, followed by Mombasa with Sh18.1 billion and Kisumu at Sh15.4 billion.

Still, market players saw the nationwide participation in the bond offer as pointing to a growing appetite for investment on the domestic front.

“The participation from across the country indicates the level of awareness of Kenyan investors to participate in the capital markets is rising,” said Mr Njoroge.

High levels of wealth disparity saw the thrust of this year’s government budget focus on a wealth dispersion plan targeting the rural folk in the hope of easing the poverty burden.

More than Sh50 billion from this year’s Sh866 billion government budget is to be disbursed through the Constituency Development Fund (CDF) network.

But even as the government attempts to promote economic devolution in the country to combat widespread poverty levels, investors both large and small are fuelling the funding bonanza for equity and debt seekers in the Kenyan capital markets.

The KenGen PIBO has tested the depth of the local debt market affirming its ability to soak up huge borrowings from both the government and the private sector.

An oversubscription of the KenGen PIBO by Sh1.6 billion is a sign that Kenyan investors are hungry for new investment instruments that offer steady returns.

In light of the 11 per cent oversubscription, the allocation policy for the institutional investors was reviewed.

All investors in the institutional pool will receive their bond allocations in full up to Sh20 million.

While investors who applied for an allocation above this amount will be allocated the remaining balance on a pro rata basis of 91.5 per cent.

Investors in the retail investment pool which was under subscribed by Sh600 million against an allocation Sh5 billion will receive their full allocations.

Unlike in other offers of this scale, this will be the first time where investors of moderate means will get the full allocation of shares they had applied for.

All refunds where applicable will be processed through EFT (Electronic Funds Transfer) from November 2.

KenGen says this will affect 114 institutional investors all of whom had applied for bond allocations of above Sh20 million.

The investment in additional power generation capacity through the PIBO is part of KenGen’s five-year strategy (2008-2012) of increasing its power generation capacity by 500 MW to stabilise the power situation in Kenya.

KenGen proposes to increase its generation capacity by 528.6 Megawatts (MW) within the next four years (1 July 2009 to 30 June 2013) and 1,635 Megawatts between 1 July 2013 and 30 June 2019.

Therefore, this will result in an expansion of the Company’s electricity generation by 2,163.6 MW within nine years.

This power generation firm hopes that the expansion will give boost its power capacity to cope with the rising demand, anticipated at eight percent annually.

According to KenGen, the projects being implemented and commissioned within four years to 30 June 2013 are categorized as Horizon 1 Projects while those being commissioned from this date up to 2019 are referred to as the Horizon 2 Projects.