Liberty offers investors rare option of cash or bonus shares

Mike du Toit, Liberty Holding’s chief executive. Photo/FILE
Mike du Toit, Liberty Holding’s chief executive. Photo/FILE 

NSE-listed insurer Liberty Holdings has offered shareholders the option of taking cash or bonus shares for its dividend payment in a strategy that gives the group an avenue to capitalise reserves for financing expansion.

Technically known as a scrip issue, the option is rarely used by Nairobi Securities Exchange-listed firms, with the latest examples being offers by the Standard Group in 2010 and beer maker EABL in 2001.

Liberty Holdings has declared a dividend of Sh1 per share, which could see it spend slightly more than half a billion shillings if all shareholders opt for a cash payout.

The scrip issue is set at a price of Sh15.9 per share. “It is meant to offer flexibility to shareholders,” said Mike du Toit, Liberty Holding’s chief executive.

Analysts said Liberty’s scrip issue is either a cash-retention strategy or a desire by the major shareholders to raise their stake in the firm on the strength of their larger dividend entitlement.

“Scrips are usually issued to preserve cash,” said Eric Musau, an analyst at Standard Investment Bank.

“It also offers major shareholders an opportunity to increase their equity position,” he added.

Liberty, however, says the move is aimed at offering flexibility to shareholders who stand to profit from significant capital gains on the buying price. 

“It was also decided to ratify the board of directors proposal to pay the dividend either as a scrip or, if elected by the shareholder, as a cash dividend,” Liberty said in a notice for its May 21 AGM.

The target price of Sh15.9 has already been overtaken by the company’s share price which closed at Sh19 Monday, representing a 19.4 per cent gain.

Liberty’s stock has gained 56 per cent over the past six months, with the scrip issue set to generate interest in the share.

The company has also asked shareholders to create 515.2 million new ordinary shares as a share capital expansion plan that will ensure enough stocks are available to cater for a full scrip subscription.

Mr du Toit added that the default payment will be in stocks; and shareholders will have to file their preference to be paid the money in cash.

A study last year on the usage of scrip issues in Kenya by a masters degree student at the University of Nairobi found that the payment option is often received positively by the market, and is largely seen as a bid by management to encourage more investors to buy the stock.