Just as we engage on a debate on the restructuring of the KPLC balance sheet, i thought it was important to do a post on the origins of the origins of this monster (7.85% Redeemable non-cumulative preference shares. It also comes in a time when we start on a new chapter and remember how one Mr. Gichuru, then then CEO of KPLC could donate huge sums of money and you can guess where they were coming from. The climax of looting was in the last years of Nyayo era when KPLC would buy power from KENGEN and post huge loses.... lakini drought was the scape goat. Make no mistake, 15.899billion in the year 2003 was huge, indeed VERY HUGE. So, a conversion of 1:1 should not surprise me.

This info is already on the public domain, it is not news; infact it is old news.

Owing to the financial loss suffered by the Company resulting from the severe drought that ravaged the country from 1999 to early 2001 resulting in power rationing of unprecedented levels, the Company owed KenGen KShs.12,260million and the Government KShs.3,639 million as at 30th June, 2003. The Government, KenGen and the Company have agreed on measures that will partly strengthen the capital base of the Company in addition to providing the needed financial relief during the recovery period. These measures, which have been approved by the Cabinet are :
(i) formal approval of waiver by KenGen of the late payment interest penalties of Ksh.1,182 million levied on overdue electricity debt in 2001/02. The waiver had been approved in principle by the Government in October, 2002 and incorporated in the Company’s accounts of 2001/02 ; and
(ii) subject to approval by the Shareholders and the Capital Markets Authority, conversion of Ksh.12,260 million owed to KenGen by the Company into 7.85% redeemable non-cumulative preference shares. The rate of 7.85%, which was determined following a professional empirical valuation by Dyer and Blair Investment Bank Ltd., will be reviewed upwards or downwards in 2009 and 2010, taking into account the operating conditions and market dynamics prevailing at the time. The debt of Ksh.3,639 million owed by KPLC to the Treasury was, subject to the approvals aforementioned being obtained, be also converted into preference shares with similar rights and privileges as those of KenGen. The new preference shares were, however, not have voting rights. The restructuring of this debt were to enable the Company save about Shs.1.1 billion in interest charges annually.

@BGL i'm very ok with the conversion ratio because 1.1 billion of my profits per year can now be given to me as dividend or re invested... Both ways i win.. i plan to take up all my rights and wait for 10years...

The real intention of this post was to inform the young men and women who are holding this stock and have no idea where the preference shares originated from. Remember most wazuans joined the NSE when KENGEN IPO was floated.

The conversion.... i have no idea.... i can only wait to see the finer details of the restructuring which i suppose will be announced when they release their end year results.

To the best of my knowledge, KPLC (not KenGen) had Preference Shares. A firm can issue Preference Shares just as it can issue Common Shares and permission is generally sought from the Common Shareholders especially if the issue is large enough to cause a material change in the Capital Structure.

Rights Issue: This is generally for Common Shares. This can get complicated in relation to Preference Shares.