Kenya Re #ticker:KNRE shareholders are set for a Sh26.2 billion windfall in a bonus share issue that will see them gain three shares for each one held in the company.
The Nairobi Securities Exchange-listed firm has announced plans to inject into the business Sh5.25 billion from its cash reserves by issuing to existing owners an additional 2.099 billion bonus shares.
The reinsurer currently has 699.9 million issued shares from an authorised share capital of 800 million units. To push through the bonus, it is creating an additional 2.4 billion units out of which the 2.099 units will be issued to the firm’s owners.
“Such shares are to be distributed to persons registered as holders of the company’s ordinary shares at close of business on June 14 in the proportion of three ordinary shares for every one held,” said Kenya Re in an announcement Monday.
The firm’s stock rallied in trading Monday as investors started angling early for a piece of the bonus issue pie.
Having opened the day at Sh10.95 a share, the stock gained 14.15 percent in trading Monday to close at Sh12.50, putting the anticipated gain for shareholders at Sh26.2 billion based on current price.
Stocks ordinarily re-value downwards once bonus issue shares are listed, to reflect the float increase in the market.
Market prices for previous bonus issues at the NSE have however tended to rally significantly between the date of announcement and book closure, like is happening with Kenya Re, which leaves investors with a substantial gain even after the additional shares are listed and the price correction takes effect.
Kenya Re is majority (60 percent) owned by the Treasury, which is set to be the biggest winner in the bonus issue that is also meant to unlock more liquidity of the stock at the NSE.
The company had 102,446 shareholders on its books as at the end of December, but 32 largely institutional shareholders including the Treasury held 81.4 percent in the firm, indicating its relative lack of liquidity in the market.
The reinsurer listed on the NSE in 2007.
The firm announced a net profit of Sh2.27 billion in the year ending December 2018, a 36.4 percent drop compared to the previous year.
It is paying shareholders a dividend of Sh0.45 a share, amounting to a total distribution of Sh315 million.
The dividend per share was significantly lower than earnings of Sh3.25 per unit.
The firm has however dipped into its substantial pile of Sh22.2 billion retained earnings to reward shareholders with the bonus issue, in effect capitalising the past earnings.
The Kenya Re bonus issue is the second in the market this year after the I&M Holdings’ one-for-one issue in March.
It is also the fourth bonus issue in the NSE in the space of 15 months.
NIC Holdings and HF both issued 1:10 bonuses in March 2013, indicating that firms are increasingly turning to their cash reserves when looking for additional capital.