Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Kenyan investors locked out of Precision Air IPO
Kenya Airways owns 49 per cent in Precision Air with its share expected to be diluted to 34.2 per cent after IPO. Photo/LEONARD MAGOMBA
Kenyan investors will be locked out of the upcoming sale of Precision Air, a subsidiary of national carrier Kenya Airways which is expected to list at the Tanzanian bourse next month.
Kenya Airways chief executive Titus Naikuni said the Precision Air shares will be sold only in Tanzania in the upcoming initial public offering (IPO) of the country’s biggest airline.
“The IPO is scheduled to be carried out in Dar-es-Salaam only as it is a Tanzania registered company,” said Mr Naikuni in a statement.
Precision Air currently has two shareholders; Michael Shirima—a Tanzanian who founded the company and owns 51 per cent shares and Kenya Airways (KQ), which owns 49 per cent.
Pricing of the $28 million (Sh2.4 billion) IPO will be announced later this month after regulatory approvals.
The recently concluded Rwandese brewer Bralirwa’s IPO, the Safaricom offer and Stanbic Uganda’s share sales were floated in all East African Community countries.
Tanzania, which is a member of the regional economic grouping, but has restrictive capital flow rules, has not allowed its nationals to participate in the IPOs.
Mr Naikuni said 65 per cent of Precision Air unissued stock—about 55 million shares—will be on sale with funds to be used to finance expansion of the Tanzanian airline.
“Funds generated from the IPO have been earmarked primarily for capital expenditure to facilitate expansion of Precision Air into a regional carrier as well as modernisation of the airlines’ equipment,” said Mr Naikuni.
The expected share price for IPO will be Sh42 (50 US cents or 756 Tanzania shillings).
Kenya Airways’ shareholding in Precision Air after the IPO will be diluted to 34.2 per cent.
The KQ boss said Precision Air remains a strategic investment for the national carrier’s regional business.
Last year, the Tanzania subsidiary generated revenues of Sh5.3 billion out of which KQ earned Sh77 million as its share of the associate company’s profits.
This was an improvement from the 2008/09 revenues of Sh4.6 billion and profit share of Sh62 billion, and the 2007/08 turnover of Sh3.2 billion and profit share of Sh66.3 million.
Mr Naikuni said an increased footprint for Precision Air will give KQ’s customers access to more destinations and at higher frequencies.
The Tanzanian firm is planning to ride on the increased demand for air travel in Africa and the region in particular by injecting more funds into its operations.
Analysts say they would have expected the shares to be sold in both Kenya and Tanzania given the fact that KQ is a Kenyan company and the coming into effect of the common market in July 2010.
“We would very much like to see the IPO on sale here, but reality is different,” said Alexander Muiruri, a research analyst at Dyer and Blair Investment Bank.
Mr Muiruri said it was clear the common market was yet to yield much fruit and it could not be relied upon to bring change in the capital markets.
Eric Musau, research analyst with Africa Alliance said investors still have a chance to get Precision Air’s shares at the stock exchange since they will be listed.
“Investors can buy at the secondary market. The additional investment by Precision Air will help increase the overall value of Kenya Airways which remains a major shareholder,” said Mr Musau.
Last July, Precision Air said it would conclude the IPO by the end of 2010, but this did not happen as the markets regulator had not approved the listing.
The Precision Air IPO is expected to spur trading activities at Dar es Salaam Stock Exchange (DSE).
Mid last year, the DSE all-share index was at 1,171 points, but this has since risen to 1,189 points as at March 9.
Cheaper aircraft
Precision Air management is hoping for marginally better valuation of the company with the higher index as well as the increased economic growth and better prospects going forward.
The company is betting on a cheaper, but efficient aircraft made by French-Italian maker ATR to increase flights in Kenya, Uganda, Burundi, Rwanda and launch new routes.
The airline has its eyes on Burundi, Rwanda, Zimbabwe, DRC, Malawi, South Africa and Angola.Currently, the airline serves the Tanzanian domestic market, Entebbe, Mombasa and Nairobi.
“We have seen an opportunity in the region and we want to expand as well as modernise our fleet,” Mr Shirima had earlier said.
Once listed in the DSE , the company will look at cross listing in other markets, Mr Shirima said.
