Kenya has suspended the planned privatisation of power producer KenGen.

Instead, the company last week launched a Ksh28.8 billion ($280.49 million) rights issue to fund its expansion programme.  

Sources told The EastAfrican that the government, which owns a 70 per cent shareholding in the utility company, opted to help the company raise additional capital from existing private investors through the rights issue rather than bring in a strategic investor.

“They chose the option of a rights issue because the key thing was to mobilise capital,” a source privy to the transaction said. The government will not inject any money through the rights issue because it is converting its Ksh20.2 billion ($197 million) shareholder loan into equity in the company.

The government will take up 3.06 billion shares of the 4.4 billion shares on offer by virtue of its 70 per cent shareholding in the company.

The payment for these shares will be through a debt-equity swap.

READ: Kenya swaps debt for equity in KenGen's $207m cash call

“Following detailed due diligence and options analysis, a rights issue was agreed on as the best option,” Solomon Kitungu, executive director at the Privatisation Commission, told The EastAfrican.

Investors willing to participate in the rights issue but who are not shareholders can buy rights of owners who are not willing to exercise their option at the securities exchange.

Non-shareholders also have an option of buying the shares that will not be taken up at the end of the rights issue period through what is known as a rump.
Existing shareholders who do not participate in the offer will have their ownership diluted.

Listing and commencement of trading of new shares at the NSE will be on July 6.

KenGen was among parastatals earmarked for privatisation to mobilise resources for additional investments and raise resources to support the government’s ballooning budget.

But the process has moved at a snail’s pace,  with privatisation of other state-owned enterprises  such as  Kenya Pipeline Company Ltd, East Africa Portland Cement Company, the Kenya Meat Commission, Agro-Chemical and Food Company and  Kenya Ports Authority (KPA) put on hold.

Analysts said that the government’s shareholding in KenGen could rise beyond the 70 per cent in the event that the minority shareholders who own the other 30 per cent fail to take up their rights in the ongoing cash call.

Share price

Last week, KenGen stock on the Nairobi Securities Exchange traded below the offer price, raising fears that the minority shareholders could prove reluctant to take up their rights, instead opting to buy the shares from the secondary market.

On Wednesday, KenGen stock  on the bourse traded  below the rights issue price for the second consecutive day at Ksh6.50 ($0.06) with foreigners selling Ksh4.76 million ($46,359) worth of shares compared with purchases of Ksh693,375 ($6,752.97).

The stock was trading at Ksh6.50 ($0.06) compared with the rights issue price of Ksh6.55 ($0.063).

Some analysts view the cash call as “opportunity” for the power producer to clean up its books in readiness for privatisation.

“I think the major driver of this rights issue is for KenGen to clean up its  books,  which  are highly  leveraged  on debt, considering  that they have  progressive plans  for the company to be privatised  and are also  involved in capital intensive power generation business,” said Daniel Kuyoh, a  senior investment analysts at Alpha Africa asset managers.

Speculating on the company

“The company had a lot of debts on its books compared with equity and that was becoming dangerous. This highly leveraged debt has put the company at a disadvantage in terms of raising new capital from the market,” added Mr Kuyoh.

“I think it is just perceptions that people have that are not based on fundamentals. For the past three years since the company announced that it will be raising capital through a rights issue, people have been speculating on the company. I think this is what is driving the price down but we expect the rights issue to be successful,” said Teddy Pole, an investment analyst at AIB.

KenGen is offering 4.4 billion new shares to the existing shareholders in the ratio of two shares for every one held.

The proceeds of the cash call will be used to finance new geothermal and wind power projects that form part of the company’s 720MW development plan, scheduled to be complete by 2020.

They will also be used to re-structure KenGen’s balance sheet and provide the company with sufficient headroom to secure long-term development financing at low interest rates.

Kenya’s installed power capacity as of June 30 2015 stood at 2,320 MW, of which KenGen contributed 1,617MW.

The national energy mix was dominated by geothermal (43.74 per cent), Hydro (35.67 per cent) and thermal (19.16 per cent).

The balance of 1.43 per cent came from imports, wind and solar.