The capital markets regulator is forecasting that the sale of a 65 percent stake in Kenya Pipeline Company (KPC) through an initial public offering (IPO) will fuel an estimated half a trillion shillings gain in the market value of the Nairobi Securities Exchange (NSE).
The Capital Markets Authority (CMA) told two parliamentary committees on August 12 that the sale looks set to grow the market value of the NSE above Sh3 trillion.
The projected jump in value is linked to KPC’s entry into the market and increased demand for other counters from investors brought to the bourse by the IPO.
“Currently, the NSE has a market capitalisation of approximately Sh2.505 trillion. With the listing of KPC, this figure is projected to rise by at least Sh100 billion, bringing it to around Sh2,605 trillion, even before accounting for the broader market reaction to such a positive development,” said Wycliffe Shamiah, the CMA chief executive officer.
“If the initial public offering is successful and investor sentiment remains strong, market capitalisation could exceed Sh3 trillion by the close of the financial year.”
This indicates that the CMA expects the IPO to add over Sh500 billion to the market.
The Treasury will sell a stake of up to 65 percent in KPC as it seeks to raise Sh149 billion from the privatisation of State enterprises.
The pipeline operator, apart from Safaricom, is the only big-ticket firm that could help the State meet its target of raising billions of shillings in a fiscal year when the State avoided new taxes in the Finance Bill.
The KPC stake sale looks set to ease the dominance of the four biggest stocks at the Nairobi bourse and end the 13-year IPO drought.
The four stocks — Safaricom, Equity Bank, East African Breweries Limited (EABL) and KCB — yesterday accounted for 62.7 percent of all investor wealth at the bourse.
The performance of the four stocks has defied attempts by the CMA to lower risks for investors by offering wider choices through new products and listings.
The CMA has been trying with little success to woo big industry players to consider listing on the exchange.
This has seen the NSE endure a long listing drought.
There were eight major listings by IPOs between 2006 and 2011, which brought into the bourse KenGen, Safaricom, Cooperative Bank and Britam.
Activity has since gone quiet with just two IPOs - NSE Ltd and Stanlib Fahari - since 2012.
“IPO is expected to introduce new securities to the market, offering investors a fresh, attractive investment opportunity,” Mr Shamiah said.
“This is expected to lead to a surge in trading activity, with a significant increase in both trading volumes and overall market liquidity.” The CMA wants the State to preserve up to 30 percent of the KPC shares on offer to retail investors.
“Propose to consider full allocation of retail investors or set a quota for retail, e.g 10-30 percent to encourage small investors to come to market, given they create market activity due to their speculative behaviour,” said Mr Shamiah.
The Treasury has also announced plans to sell another mega stake in Safaricom before June next year.
The two deals promise to be the largest transactions in the region as global private equity firms prowl Africa for telecoms and energy sector deals due to their predictable revenues and steady cash flows.
KPC’s net profit increased to Sh6.87 billion in the year to June last year, up from Sh4.49 billion in the same period a year earlier, reflecting a 53 percent jump. Its assets stood at Sh120.7 billion.
This makes KPC the most asset-rich and profitable firm among Kenya’s state corporations, a key magnet for investors seeking holdings beyond banks, Safaricom, EABL and BAT Kenya at the NSE.
The firm seeks to be the key gateway to feeding land-locked growing economies of Rwanda, Uganda and the DRC, which rely on Kenya’s Mombasa port for fuel imports.
KPC’s existing pipeline runs from Mombasa to Nairobi, and onwards to the town of Nakuru, and then forks to two other towns in the western region-- Eldoret and Kisumu.
Many of the products have to be trucked to countries in the region, which is slow and unreliable owing to the breakdown of trucks and damaged roads.
Kenya has been seeking new sources of funding since deadly nationwide protests last year forced it to pursue austerity measures and scrap planned tax hikes worth more than Sh346 billion.
The State has been short of entities deemed ripe for privatisation, as the majority of them are struggling after years of loss-making and mismanagement.
Safaricom and KPC are seen as the only other viable firms that can help the State move closer to the Sh149 billion target.
The proceeds from the sale of stakes will back the Sh3.32 trillion revenues from taxes and ministerial levies for funding the total expenditure at about Sh4.29 trillion.
Initially, the State had selected 11 firms, including Kenya Pipeline, Kenyatta International Convention Centre (KICC) and New KCC, from among more than 35 companies that are slated for sale to partially help the government raise revenue in the face of growing debt repayments.
The State retained a 34.9 percent stake in Safaricom worth Sh397.8 billion after selling 25 percent to investors via an IPO in 2008.
