KPLC has this morning issued a public announcement regarding the above in today's dailies (e.g. see Pg 34,Daily Nation - 20th Nov 2009).

While it is too early to form proper conclusions without having all the relevant information,my immediate view regarding this move is that it could be negative for the small retail investors,if it is not preceded by a comprehensive revaluation of KPLC assets. My reasons:

1. Conversion of preference shares at current (market) prices will result in the goverment taking up additional ordinary shares at a price well below their intrinsic value.

2. Government will increase its shareholding of the company from the current 40.4% to well above the 51% threshold giving the goverment even more control than it currently exercises. We all know that absolute control by Govt of listed companies has invariably been to the disadvantage of other shareholders. Practically all listed companies with major govt stakes underperform their peers.

3. Floatation of a rights issue (where the government will renounce some of its rights) will increase the number of shares in the market. However,this can turn into a positive if Fund Managers (especially International) see this as an opportunity to accumulate what has otherwise been a very illiquid share. Nonetheless,if the market will not have sufficiently recovered by the time of the floatation of the rights,this could still prove tricky.

As for the share split,I expect this to be taken positively as the share will henceforth be more affordable to the masses. Pity they did not undertake the share split earlier when they were all the rage!

What are your thoughts?



Opportunity calls but few respond.

@Mwanahisa. I think you are wrong on this one. 7.85% Preference dividend would have had KPLC paying Govt a total of Kshs 1,248,091,125. On a worst case scenario,KPLC converts the preference shares at say Kshs 140. Thus Gava gets 98.8 million new shares. Kshs 8 dividend (2008/9 FY total dividend) on this would be 790.4 m. KPLC comes out ahead by 457.7 million. As for the govt control,it is already there. KPLC does not lose anything.

'When you do not know a thing,admit that you do not know it. This is knowledge' - Confucius

Its an OFS to help GoK raise some cash to close the Rift Valley-sized budget deficit that is developing.

Its just being done by stealth because GoK has realised investors won't buy if it calls it an IPO like in the past.

GoK finances must be really grim.

If I was a retail shareholder,I'd dump the shares in a couple of weeks and pick them up once the rights issue is done next yr. There will be plenty of shares to go round.


www.mjengakenya.blogspot.com

I reiterate that I think KPLC is not only doing the right thing but also that the restructuring is necessary. @VVS,Govt's intention was never really to 'kula' dividends from KPLC. It was actually a way of saving KPLC from insolvency in the Gichuru years - The genesis of the preference shares was that these preference shares were originally debts due to Kengen which were then taken over by Govt prior to listing KenGen.

It makes sense for KPLC to get rid of the elephant on its neck - Preference shares are relatively more expensive forms of capital. Dividend has to be paid unlike on ordinary shares,which can be foregone when Mgt is of the view that the money can be more suitably reinvested.

As for the rights issue,KPLC certainly needs more capital. In the next few years a lot more power will be generated into the national grid and KPLC needs to have the appropriate infrastructure to distribute the power to the ultimate consumer. This is a share to watch notwithstanding any fluctuations in the short term.

Now let's just pray that the rights are priced correctly - obviously the lower they will be the better for existing shareholders. Many will not however see the sense of that initially and will sell the shares only to regret later.


'When you do not know a thing,admit that you do not know it. This is knowledge' - Confucius

@Iborian - As an EXISTING shareholder... I am ambiguous about the Rights Offer... I would have preffered a payout to GoK... buy back the pref shares over time... but raise cash through a bond as rates become cheaper.
*** The current shareholders might get 'over-diluted'
***** On the other hand I think the profits are set to jump as KPLC invests in upgrading the network as well as cut down on electricity theft...

Greedy when others are fearful,Very fearful when others are greedy - to paraphrase WB

@ectasy - a split or bonus will make the shares more 'affordable' thus increase the demand. Since we are slicing the cake into smaller pieces,the size of cake does not change...

Greedy when others are fearful,Very fearful when others are greedy - to paraphrase WB

Equity - My friend,they gave a 2:1 bonus then followed it with a 10:1 split since they listed... The share price had climbed to a crazy number with a PE of 20... the split has stabilized the price.

Safaricom - It has never split or given bonuses since its IPO.

KCB - Similar to EB but unlike EB was always more affordable. Of course,profits went up slower than EB. It was Triton that broke the camel's back exactly 1 year ago.

The splits/bonuses will help keep the price higher than if there were not splits...

Greedy when others are fearful,Very fearful when others are greedy - to paraphrase WB

Had to bail out ex-dividend.I was not ready to wait for the dilution,by whatever factor it will be.Once they release the conversions,can pick the entry point.

What will/should affect KPLC is the availability of electricity to sell. Demand is strong. KPLC's annual report talks of 'suppressed demand' which is the equivalent of 'rationing'.

Consumers WANT to buy electricity (D>S) but there was not enough power to sell. The price is 'fixed'/regulated. KPLC cannot charge more than the ERC's mandated price. The other variations (fuel, forex) are mostly pass-throughs. KPLC does not benefit.

Bw.cnn -

I do NOT know how many shares will be allocated to GoK (though we know the 'value' approx 13.8bn worth) so it's a guesstimate at best.

The NAV (many assets have not been revalued for years) is higher than current price. Strong earnings growth.

As an existing shareholder, I hope they are priced higher than the current market price. The current price is 'low' partly due to the uncertainty created by the announcement.

I believe the intrinsic value of KPLC is north of 200/-.