Treasury allocates Sh2.5 billion more for KQ rights issue
Passengers alight from a Kenya Airways aeroplane at the Kisumu International Airport recently. FILE
The Treasury has allocated an extra Sh2.5 billion for the Kenya Airways rights issue in the supplementary budget, showing its intention to pay up for its stake in full .
Parliament had slashed by half the Sh5 billion initially set aside by the State in last year’s annual budget to defend its 23 per cent stake in the national carrier.
The MPs argued that the cash was urgently needed to meet famine relief efforts arising from the drought that faced parts of the country.
In the supplementary budget estimates tabled in Parliament Tuesday, the Treasury says it was setting aside Sh2.5 billion “to cater for equity participation in Kenya Airways rights issue”.
The government had said it could finance the purchase of the KQ rights in two tranches put either in the supplementary budget or the annual estimates normally presented in June.
Kenya Airways was to book the issue as fully exercised, pending settlement of the two-tranche plan. Re-allocation of the cash into the rights issue will ensure that the public — through the state and retail shareholders — maintain the majority stake of at least 51 per cent in the company and also give investors more confidence in the rights issue.
“The point is to see that the government ensures Kenya maintains the majority shareholding. It is also a confidence booster for the issue,” said Vimal Parmar, a research analyst at Kestrel Capital.
The government and Dutch-owned KLM are currently the anchor shareholders with 23 and 26 per cent, respectively. The Treasury holds 106.2 million shares and is set to get an extra 339.7 million shares on the basis of the offer policy of 16 new shares for every five ordinary shares held. This means the state will require about Sh4.757 billion to take up its rights.
Standard Investment Bank (SIB) said the issue would be boosted by more investor participation in the stock market.
“We see participation by local investors remaining healthy, especially as domestic interest rates reduce – which will encourage local fund managers to start relooking at equities more actively,” said Eric Musau, an SIB research analyst, in a note to clients.
In order retain its status as national carrier and retain existing bilateral air service agreements, noted Mr Musau, locals must have a combined stake of at least 51 per cent after the rights offer. Currently, Kenyan investors have a 60.26 per cent stake.
Mr Musau said the decline in price ahead of the rights issue coupled with the dilution impact would make it difficult for potential shareholders not to take up their rights.
