Kenyan IPO only 60% subscribed but regional plans go ahead

Kenya’s financial services holding company British-American Investments Company Ltd.(www.british-american.co.ke) issued a statement on 23 August outlining that its initial public offering (IPO) had only attracted 60.09% of the targeted KSh5.85 billion ($63million). The company owns 2 insurance firms and an asset manager and said it will reconsider its plans, which had included real estate and regional expansion, including in South Sudan.
The listing was previously detailed on this site here.
The company successful raised KSh3.5bn by selling 390.6m shares at KSh9.00 each. It meets the minimum 50% requirement in its prospectus to go ahead and with 28,000 shareholders is permitted to list on the Nairobi Stock Exchange main board. The shares are due to start trading on the Nairobi bourse on September 2.
According to stockbroking analysts, foreigners were largely absent due to risk aversion and worries about the Kenyan economy. Reuters quotes George Bodo, a research analyst at ApexAfrica. “The timing of the IPO came … when the global markets were risk averse and foreign investors were cutting risky positions internationally.” International problems include the US economy and the eurozone debt crisis. “It was unfortunate that the US debt crisis escalated right in the middle of the offer period, causing loss of appetite amongst institutional investors especially those outside Kenya,” said Group chairman Nicholas Ashford- Hodges, according to a report in “Business Daily” newspaper.
Foreign investors normally account for 70% of action on the NSE, but Reuters says they are less active and this has been made worse as the Kenyan currency declines against world currencies.
Local retail investors recorded the highest participation, taking up 70.9% including a 142% oversubscription of the 195m shares offered to them; qualified institutional investors hung back and took up 23.7%, just over a third of their 240.5m shares allocation; employees, agents and individual life policyholders snapped up 5.2% and foreign investors were almost absent, taking up only 0.3% of the offer, less than 1% of the 195mn shares reserved for them.
Analysts said the poor macroeconomic environment in Kenya did not augur well and inflation in Kenya hit 15.53% in July, driven by food and fuel prices. Rising interest rates have dissuaded many investors from seeking funds from banks to invest in shares and banks were also not willing to take shares as collateral. Gregory Waweru, an analyst at Kestrel Capital, was reported as saying: “There was competition for funds due to tight liquidity in the market.” Many investors have not yet realized substantail returns from East Africa’s biggest IPO which was Safaricom’s listing in 2008.
British American had planned to spend KSh2.5bn on property development and group managing director Benson Wairegi said in a statement: “The property development initiative where the bulk of the funds were targeted will be reviewed with a view to scaling it down.”
The company was also to set aside KSh1bn for regional expansion and KSh1.28 bn to expand its Kenyan operations, including the asset management business and to launch new funds for Kenyans in the diaspora as well as local and international investors and to comply with a proposed law for real estate investment trusts.
Mr Wairegi said the company may consider using bank loans to finance other planned projects: “The group has no other gearing despite the very strong balance sheet, which has become even stronger with the raising of KSh3.5bn. We shall, therefore, be able to easily leverage to implement all the profitable projects that have been lined up,” according to a report in “Business Daily”.
British American launched a Ugandan subsidiary in July and at the time the chairman said next stop would be to open offices in Rwanda, Tanzania and South Sudan.

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