Kenya Airways share falls below rights issue price
Kenya Airways issued profit warning due to drop in revenues. File
The Kenya Airways (KQ) share has slipped below the discounted rights issue price of Sh14, dealing a potential blow to the offer as it makes it more attractive for investors to buy the stock in the open market.
The share has fallen steadily since the Sh20.6 billion rights issue plan was announced on March 9, closing at an average price of Sh13.65 in Thursday’s trading, 2.5 per cent below the rights issue price. As a result, analysts predict that it will be more difficult for the national carrier to raise the huge shareholder capital it needs to advance its costly expansion plan.
“Why should I buy the share at Sh14 when I can get it at a cheaper price in the market?” posed Robert Munuku, a research analyst at Drummond Investment Bank
The last time the share touched this level was in 2004.
The airline plans to raise Sh20.6 billion through the rights issue, but has already secured nearly half the amount after getting guarantees for participation from the government and KLM, the two anchor shareholders.
The government and KLM have a combined shareholding of 49 per cent of the national carrier.
The balance of Sh10.6 billion is expected to come from other shareholders who own 51 per cent of the airline, in what is billed as the region’s biggest ever cash call.
Analysts at Sterling Capital also said KQ’s capital hunt is likely to be difficult. “This might compromise the success of the issue, as shareholders may opt to buy the shares in the market at a lower price,” said a report by the stockbrokerage firm. Trading so far, Mr Munuku added, has been characterised by higher supply than demand for the KQ stock. In Thursday’s trading the share touched a low of Sh13.10 and a high of Sh14. “Supply was still solid with the best offers at Sh14 and the best bid at Sh13.60,” said Sterling Capital’s report on Tuesday.
Expectations that the price will remain stuck below Sh14 and projections of a drop in annual earnings for last year following a profit warning by the airline are fuelling the price drop, said Renaldo DeSouza, a research analyst at Genghis Capital. The national carrier announced a profit warning in January, which it said was a result of the eurozone crisis, rising fuel prices and turmoil in Egypt and the Nigerian markets towards the second-half of the year impacting revenues.
“The share price is a function of both market sentiment and financial performance. The two appear to be working against the share at the moment,” said Mr DeSouza.
In the 2010/11 financial year, the airline made a net profit of Sh3.5 billion. Analysts added that the price drop is also driven by investor concerns that the rights issue may dilute ownership and also lower expected earnings.
