Low demand for KQ rights issue by retail investors

The demand for Kenya Airways rights issue by local investors remained low a day before Friday's deadline.

Analysts say high interest rates in the market have prevented many retail investors from participating in the rights issue, as many of them depend on borrowed funds to invest.

“Interest rates in the market are very high currently. This has discouraged some investors who would have opted to borrow to participate in the rights issue,” said NIC Securities research analyst Samora Kariuki in a previous interview.

“Many investors also want to put their money in higher yielding government securities like Treasury bills, which are fetching about 16 per cent returns.”

Kenya Airways is looking to raise Sh20.68 billion to finance its fleet acquisition and 10-year expansion plan through a rights issue.

Existing shareholders have the option of buying 16 shares for every five held, priced at Sh14 per right.

Equity analysts, however, said there was high demand from institutional investors, most of whom took up their rights.

“It has been quite busy for us here.  A bulk of the demand has come from local institutional investors. We expect the demand to remain high even on the last day of the issue,” Standard Investment Bank research analyst Eric Musau said on phone.

The demand by institutional investors has been largely driven by the changing fortunes of the bourse, lifting it to an eight-month high last week.

The investors are looking set to reap from the improving performance of the stock market as conditions in the economy improve.

Analysts say the institutional investors have largely been attracted by the rising share price of the airline, which closed trading Thursday at Sh14.90 up from the rights issue price of Sh14.

Local commercial banks, investment companies, insurance and pension firms are some of the institutional investors participating in the right issue.

Already, KQ’s two main shareholders, Royal Dutch KLM and the government have taken up their 49 per cent stake.

The International Finance Corporation, World Bank’s lending arm, has also committed itself in acquiring 2.5 million rights and subsequently applying for 140.5 million additional shares.