Kenya Airways unveils its rights issue offer in Nairobi. The KQ share has dropped below the discounted price of Sh14, but investors showed appetite for the stock.
Kenya Airways’ anchor shareholders, the Treasury and Dutch airline KLM, will be forced to scale down their uptake of KQ’s Sh20.6 billion rights issue if the cash call is under-subscribed.
The condition, which is disclosed in the information memorandum for the share sale, has been set to limit the two shareholders’ control of the company to 49 per cent of the issued share capital.
“To the extent that the rights issue, following the closing date, results in a total subscription of more than the minimum subscription level but less than 1,477,169,549 (the total shares on offer) the applications from KLM and the GoK (government) will be scaled back to result in them holding 26 per cent and 23 per cent of the enlarged share capital following the rights issue respectively,” reads the information memorandum.
This means the two main shareholders, who have already given an irrevocable assurance to take up their full rights, will be refunded money in case the share sale results in an under-subscription.
Transaction advisers said the clause was inserted to align the rights issue to KQ’s articles of association, which require preservation of majority ownership and control by Kenyans.
To maintain its national carrier status, which allows it to enjoy bilateral air service agreements with other states, KQ must retain 50 per cent local ownership.
With a combined shareholding of 49 per cent, the anchor shareholders are expected to raise Sh10 billion. The balance of Sh10.6 billion is expected to come from other shareholders.
The management of the airline has stated that it has received firm commitments from other stakeholders, pushing the region’s biggest ever cash call close to its minimum success level of 70 per cent.
KLM’s participation in the rights issue is limited by the local ownership clause, which makes it necessary to also limit the government’s participation to avoid diluting the Dutch airline’s interest in the company relative to the government’s.
The requirement that Kenya nationals control ownership of the national carrier also indicates participation of foreign investors will be limited to a minority interest.
To boost participation of the local investors, transaction arrangers have included financial institutions such as KCB, Co-operative bank, Equity Bank and I & M, which are offering loan facilities to small investors.
The rights issue will see shareholders allocated 16 shares for every five held as at close of register on March 19 this year.
“That should not worry as it’s the retail market segment only which is moving. If you look at last week, the total shares traded were only 936,000,” said George Bodo, an analyst with ApexAfrica Capital limited.
Funds raised from the rights issue will be used to purchase planes ordered by KQ which include nine Boeing 787 Dreamliners as it seeks to grow its passenger numbers in line with Kenya’s target to become a regional business hub.
The cash call is not fully underwritten as the underwriter, Citigroup, has committed to take up unexercised shares worth Sh420 million only in the region’s largest ever cash call.
