Sale of firms renews rivalry among advisers

The planned privatisation of East Africa Portland Cement Company (EAPCC) and KenGen began to take shape with the invitation of advisers, pointing to a scramble for the contracts among legal and financial advisory firms.

The Privatisation Commission said Friday that it’s looking for specialists to carry out valuations and offer counsel on the best way for the government to sell part of its stakes in the firms.

It’s not certain whether EAPCC and KenGen will be sold before the close of this financial year, but what is clear is the expected stiff battle for the contracts among the deal-makers looking to keep their revenue streams steady.

The government owns 70 per cent of KenGen and has a 52.3 per cent interest in the cement-making firm, which includes a 25.3 per cent direct shareholding and 27 per cent stake held by the State-controlled National Social Security Fund (NSSF).

The government aims to raise at least Sh6 billion by next June to help meet the Sh168 billion 2010 budget deficit this fiscal year.

EAPCC and KenGen are marked as the first two parastatals to be off-loaded by the Government in the current financial year, even as it works on a final plan that will see 24 others also placed in private hands.

But with the lengthy privatisation process — placing of bids and evaluation — its unlikely the firms will be placed for sale before the end of the financial year in June given that the application deadline for advisory works is April 8.

This suggests that the government is less likely to raise the targeted Sh6 billion.

But increased interests from deal-makers on the firms this financial year is expected as the recent dip in private corporate finance deals in the wake of an economic meltdown increases the need for privatisation among the advisers looking to keep their revenue streams steady.

“I expect stiff competition and very strong bids to come through,” says Sammy Onyango, the managing partner at Deloitte.

Mr Onyango added that the bidders will be looking at the professional fees and an opportunity to improve their CVs and publicity opportunity.

Members of Institute of Certified Public Accountants of Kenya and Law Society of Kenya are barred from advertising their services and opt to use privatisation transactions to highlight themselves.

The coming privatisation will only be the second since Safaricom in May last year and the first in 2010.

Kenyans will be keenly following the method by which the government will dispose of its interests in the two companies given the severe erosion of public confidence in the Nairobi Stock Exchange (NSE) since the Safaricom offer.

Data from the NSE show that foreign trades accounted for more than about 60 per cent of the total turnover since the start of the year as local investors kept away.

Low confidence was blamed late last year for the decline in public participation in initial public offerings that gave the market its very first undersubscription in Cooperative Bank share sale in November 2008.

The government, however, can sell its stakes to strategic investors.

However, this looks unlikely given that the firms are already listed on the NSE and are in sound financial health, meaning they should attract suitors, notably high net worth investors.

Portland Cement announced a net profit of Sh630 million in 2009 from a loss of Sh391 the previous year.

KenGen profits dropped 19 per cent to Sh866 million in the six months to December because of poor weather that hurt its hydro-power plants, but the growing demand for electricity coupled with KenGen’s expansion should keep profit growth steady at the power firm.

The perennial deal-clinchers among investment banks include Dyer & Blair and Standard Investment Bank with Deloitte and PricewaterhouseCoopers (PwC) sharing the accountants roles.

On legal services, there is Hamilton Harrison & Mathews and Kaplan & Stratton.

The upcoming firms are expected to seek a piece of this business by forming consortia with established names.

But the young firms will seek a piece of this business by forming consortia with established firms.

State hotels

Other firms planned for sale are national fuel distributor Kenya Pipeline Company (KPC), giant milk processor, New Kenya Cooperative Creameries (New KCC), Kenya Meat Commission (KMC) and sections of the Kenya Ports Authority (KPA).

State hotels such Karbarnet, Golf and Sunset hotels, Mt Elgon Lodge, Kenya Safari Lodge, and the hotels under Kenya Tourism Development Corporation (KTDC) —International Hotels, Kenya Hotels, Mountain Lodge — are also on the list.