KenGen pushes back Sh15bn rights issue to next year
What you need to know:
- The Treasury owns 70 per cent of KenGen and the State has been mulling a deal to convert its debt at the power generator into equity to defend its equity position.
- The delay highlights the investment risks brought by bureaucracy in publicly traded firms, with Uchumi Supermarkets also suffering a two-year wait before its cash call could proceed.
- KenGen’s share price has dropped 40 per cent over the past one year to Sh10, a depreciation that has partly been blamed on the anticipated cash call.
Kenya Electricity Generating Company (KenGen) has postponed its Sh15 billion rights issue until the first quarter of next year as it waits for a firm commitment from the government, which is the majority shareholder.
The Treasury owns 70 per cent of KenGen and the State has been mulling a deal to convert its debt at the power generator into equity to defend its equity position.
The KenGen cash call was approved by shareholders in December last year and was set to be launched by June this year.
It has however been delayed severally because of the government’s indecisiveness.
“We hope to conclude discussions with the Ministry of Energy and Petroleum and the National Treasury by end of this month. We have started preparing the information memorandum,” said Albert Mugo, KenGen’s chief executive.
DILUTED VALUE
“We need the government to back the rights. We see the rights issue happening by the end of the first quarter 2015,” he told the Business Daily in an interview.
The delay highlights the investment risks brought by bureaucracy in publicly traded firms, with Uchumi Supermarkets also suffering a two-year wait before its cash call could proceed.
KenGen’s share price has dropped 40 per cent over the past one year to Sh10, a depreciation that has partly been blamed on the anticipated cash call.
The fundraising is expected to double the firm’s current issued shares of 2.2 billion units, potentially diluting the stock’s price by a large margin.
The Treasury’s loans to KenGen increased to Sh51.4 billion as of June —more than three times the amount intended to be raised in the cash call and potentially dilutive to other investors including NSSF and businessman Karim Jamal.
KenGen plans to float 2.2 billion new shares to existing owners in the ratio of one new share for every one share held to raise money for doubling its generation capacity in the next five years.
This means the State-owned power producer could raise about Sh16.5 billion from the cash call going by the current share price of Sh10 discounted by 25 per cent. The government requires at least Sh11 billion to take up its entire rights in the KenGen offer.
Mr Mugo said KenGen needs the funds to grow its installed capacity to 3,000 megawatts by 2018 from the current 1,335 megawatts and tilt Kenya’s energy mix in favour of clean and cheaper sources like geothermal and wind.
The article first appeared in The Business Daily.
