The Kenya government has exceeded Dutch airline KLM as the biggest shareholder in Kenya Airways after the Treasury's stake in the national carrier rose to 29.8 per cent following conclusion of the rights issue.

KLM, which previously held 26 per cent of Kenya Airways shares, has increased its stake to 26.73 per cent after the share sale recorded a 70 per cent subscription rate, raising Sh14.5 billion out of a target of Sh20.6 billion.

The Treasury, which previously held 23 per cent shares of KQ, was forced to apply to the capital markets regulator for an exemption from rules that require it to declare whether it intends to take over Kenya Airways after its shareholding in the airline crossed the 25 per cent limit.

“The government having applied for its full entitlement of new shares, and thus resulting in its shareholding in KQ reaching 29.8 per cent, has applied for an exemption from the take overs and mergers regulations,” said Kenya Airways in a statement.

Under-subscription of the share sale has pushed the Treasury’s stake in the national carrier to 29.8 per cent, even though the government did not buy any rights above its allocation.

The CMA rules specify that a shareholder of a listed company whose stake exceeds 25 per cent must declare a takeover intention or seek to be freed from the rule.

“We were forced by the circumstances to apply for exemption from the rules,” said the investment secretary Esther Koimett in an interview.

Ms Koimett had on Wednesday told Business Daily in a short text message that the Treasury was “not buying more (KQ) shares,” a statement that appeared to mean that it would maintain its previous stake of 23 per cent.

By taking up its full allocation in the rights issue, the Treasury’s stake rose automatically relative to other shareholders’ ownership in the national carrier. In percentage terms, the government now holds a higher stake in KQ because other shareholders, particularly the minority, did not take up their full rights.

Had the other shareholders fully taken up their rights, the Treasury’s percentage ownership would have remained constant. Sources in the transaction advisory team had earlier put the subscription rate at 77 per cent subscription – though the final tally showed that 30 per cent of the shares on offer were not taken up.

The share was priced at Sh14, representing a discount of 32.2 per cent to the volume-weighted average price on the Nairobi Stock Exchange for the 90 days ending February 29 this year, the date that the board of directors of the airline approved the issue.

(Read: Kenya Airways rights issue attains minimum sale target)

Brokers initially said that solid commitments by the major shareholders to participate in the cash call would give the issue a boost. Both the government and KLM, who initially owned 23 and 26 per cent respectively, had committed in irrevocable commitments to take up their full rights.

World Bank’s private sector lending arm, the International Finance Corporation, had also committed to buy a 7.4 per cent stake in KQ amounting to 143 million shares in the airline after it acquired shares in the market from those who had forfeited their rights to buy more shares. Citigroup Global markets had also underwritten to take up 421 million of the rights shares.

However, postponement to announce the outcome of the offer raised speculation that it had not gone as well as the arrangers had hoped.

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