KQ share halts losing streak triggered by unveiling of rights issue
Kenya Airways share halted a three-day losing streak which had seen the stock lose 18.5 per cent since Monday when the national carrier announced plans for a Sh20.6 billion rights issue.
The Kenya Airways share halted a three-day losing streak which had seen the stock lose 18.5 per cent since Monday when the national carrier announced plans for a Sh20.6 billion rights issue.
(Read: KQ prices rights issue at Sh14, eyes multi-billion-shilling loan) The share closed Thursday at Sh15.15, marginally above the Sh15.10 12-month low it touched on Wednesday amid high supply from investors fearing dilution and speculators looking for arbitrage gain.
The counter, which is trading cum rights, will see an addition of 1.4 million shares after the rights issue.
“It appears investors are trading down the large discount offered for the significantly dilutive offer in expectation of an arbitrage gain when rights start trading,” said Standard Investment Bank in a market report.
The arbitrage results from investors selling at the current prices in speculation that buying the stock right after the share registry has closed and selling it shortly will earn the speculator a marginal gain.
Share dilution
Analysts also pointed out that the dilution of current shareholders, expected drop in profits, and a lag before expansion benefits were achieved was weighing down on the share price.
KQ, which is seeking finances to fund its 10-year strategic plan which will increase its fleet to 119 planes from 34 and expand its route to 115 destinations from current 55, opened the week at Sh18.60.
“The dilution from the rights is quite heavy with more than 3.2 times new shares and the fact that it will take some time as the money sinks into the system to increase earnings,” said an analyst who did not wish to be named.
Kenya Airways issued a profit warning in January, indicating it expected its end year profits to drop by over 25 per cent on the back of volatile fuel prices.
The company’s management is banking on the airline’s reputation, anchor shareholders, and enthusiasm from international investors to hit the target.
Local shareholding, however, has to remain above 51 per cent for it to retain the tag of a national carrier.
Shares changed hands
Two of KQ’s majority shareholders — KLM with 26 per cent and the Kenyan government holding 23 per cent — have already given assurance of their participation effectively meaning the company is seeking an extra Sh10 million from the market.
On Thursday, 808,303 shares changed hands with the register for the rights issue expected to close this evening.
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