SA pension fund raises KenGen stake

KenGen remains attractive to long term investors like PIC and other pension funds. FILE photo | nmg
KenGen remains attractive to long term investors like PIC and other pension funds. FILE photo | nmg 

South Africa’s pension fund, Public Investment Corporation (PIC), has raised its stake in electricity generator KenGen #ticker:KEGN to 10 per cent in aggressive share purchases that started early in the year.

The investment, worth more than Sh4 billion at current market prices, is part of PIC’s move to seek growth and geographical diversification outside South Africa.

It signals the South African fund’s confidence in the Nairobi Securities Exchange-listed power producer’s future prospects.

“We also approved funds to acquire a 10 per cent equity stake in KenGen,” the asset manager says in its latest annual report.

KenGen’s latest shareholder list shows PIC had already built up a 9.6 per cent stake as of June and the pension fund could have completed the remaining share purchases by now.

PIC’s purchases helped lift the stock from lows of below Sh6 at the start of the year to highs of Sh10 before receding to the current price of Sh8.3.

“KenGen is the leading producer of electricity in Kenya with attractive margins and a global leader in the production of electricity from geothermal steam, which is found naturally in the rift valley,” the pension fund says in the report.

“We are proud to be associated with a company that not only has a positive impact on the regional economy, but also helps to reduce the emission of greenhouse gases.”

PIC did not respond to the Business Daily queries on its bigger investment plans for Kenya.

KenGen’s gross profit margin rose to a high of 39.27 per cent in the year ended June compared to 38.13 per cent a year earlier, steadily climbing from 24.48 per cent in 2013.

Its return on equity is however low at five per cent and having declined from highs of seven per cent in 2013.

The power producer’s share price has, however, been on a long term decline from highs of Sh37 in June 2006. It also suspended dividend payouts in the past two years despite posting profits after previously undisclosed tax obligations came to light.

KenGen, however, remains attractive to long term investors like PIC and other pension funds given its large market share in electricity production besides periodic increments in tariffs to accommodate expenses and return on capital.

PIC’s holding of KenGen stock comprises of shares bought in the open market and 351.2 million shares it was allotted in the company and which were left on the table by investors who sat out the rights issue floated last year. 

The South African fund is now the second-largest investor in KenGen after the government which retains a 70 per cent equity through the Treasury.

Treasury’s stake had jumped to 73.92 per cent after the rights issued but the entry of PIC diluted it back to the 70 per cent level which the government intends to maintain.

The investment in KenGen underlines PIC’s strategy of diversifying outside South Africa, where it is one of the biggest investors in publicly traded firms.

It holds about 12.5 per cent of the Johannesburg Stock Exchange market capitalisation.

The fund is wholly owned by the South African government and manages pension money for various state entities. PIC invests in broad asset classes such as listed equities, property and fixed income.