KQ rights issue misses set target

KENYA Airways missed its cash call target by Sh6.2 billion in a rights issue in which the government has raised its stake to 29.8 per cent becoming the largest single shareholder. The airline managed to raise Sh14.5 billion from the rights issue against a target of Sh20 billion which was the biggest ever to be set within East Africa. This translates to a subscription rate of 70.06 per cent. All applicants will get full allocation of the shares. “Date of listing and commencement of trading of new shares on the NSE (Nairobi Securities Exchange) will be on Thursday 21^st June 2012,” said KQ in a public announcement published yesterday.

Air France KLM which was previously the largest single shareholder increased its stake slightly to 26.73 per cent from 26 per cent. “Whereas KLM subscribed for its full entitlement of new shares, its application was scaled back such that it will be allotted 280 million new shares,” said KQ. The offer which had opened on April 2 and ran for three weeks was priced at Sh14, with rights of 16 shares for every 5 shares held.

Small existing shareholders of the airline only applied for 42 million of the slightly over 1.4 billion shares on offer under the rights issue. New investors applied for 141,960,600 shares with a value of Sh1.98 billion. “I think Kenya Airways will consider the rights issue an outcome that could have been worse. Local shareholders were asked to subscribe for 16 shares for every five held, which is a structurally big call,” commented market analyst Aly Khan Satchu “The investment case whilst compelling (I believe) was not made compellingly. Local investors have been defensive for a while and are parked in the safety of the bond market.”

Peter Wachira a senior investment manager at PineBridge Investments Kenya said that although it was the biggest cash call within the region it was realistic given the commitments that KQ had from International Finance Corporation, the government and KLM. “It was coming at a time when, for a small investor, the level of inflation was very high so the high cost of living that has affected people's income could have been a hindrance to the full success of the rights issue,” explained Wachira. The offer was to raise capital for the airline to fund its fleet modernization and route expansion programme outlined in its ten year business strategy.