Kenya Pipeline Company (KPC) staff will have a chance to own a stake in the company after its initial public offer (IPO), through an Employee Share Ownership Plan (ESOP) pool that will hold 290.54 million shares.
The ESOP offers employees another path to share ownership in addition to the priority option they have to purchase a five percent stake in the company in its ongoing IPO, equivalent to 590.63 million shares, for Sh9 per unit.
An ESOP is an employee benefit plan that gives workers ownership interest in a company in the form of shares of stock. The scheme is used to encourage employees to give their all as the company’s success translates to financial rewards. ESOPs can also be used to reward long service, making them a tool for talent retention.
KPC said in an information memorandum for the public sale that the ESOP will hold up to 1.5 percent of its authorised share capital.
These shares will be sourced from the company’s unissued share capital, meaning that the vesting of the ESOP shares will result in a minor dilution of other shareholders.
KPC has 19.37 billion authorised shares, of which 18.17 billion are issued, leaving a balance of 1.19 billion units from which the ESOP units will be drawn. The shares have a nominal or face value of Sh0.02 (two cents).
“Eligible employees may acquire ESOP units at nominal value post-listing, subject to: a minimum lock-in period of not less than two years (or other appropriate and suitable period or method to be determined); and vesting, forfeiture, exit, and leaver provisions set out in the ESOP Rules,” said KPC in the information memorandum.
The IPO sale opened on Monday and will run until February 19.
However, even as other shareholders face future dilution when the Esop shares vest and enter the market, the government will be protected from this erosion through a clause in the KPC Articles of Association that stipulates that its shareholding must be maintained at or above 35 percent.
This is the stake that the State will hold after the IPO, where it is offloading a 65 percent stake in KPC—equivalent to 11.81 million shares—to the public at Sh9 per unit, hoping to raise a gross amount of Sh106.31 billion.
The Articles provide for a range of anti-dilution mechanisms to preserve the government’s minimum shareholding threshold, including adjustment formulas, issuance limitations, or compensatory allotments, or issuance of additional ordinary shares to the State in proportion to the ESOP units.
“Where anti-dilution is achieved through the issuance of additional ordinary shares to the government, such issuance would be effected at nominal value and would accordingly require the government to pay the applicable nominal consideration in compliance with the Companies Act,” reads the information memorandum.
For the allocation to employees, KPC has adopted a hybrid issuance structure for the ESOP units, where some will be allocated at no cost, and others at the nominal price of Sh0.02. The company said that the structure balances inclusion, fair reward for service, and long-term talent retention.
In line with the law, the ESOP will be established as an unincorporated trust with a professional trustee holding legal title to shares for the benefit of eligible employees.
The employees will hold units in the trust that represent beneficial interests in the underlying KPC shares.
Upon vesting, the shares will be transferred to the beneficiary under the terms of the Trust Deed and the ESOP rules, and can thereafter be traded at the Nairobi bourse alongside the other issued shares.
