Sell parastatals to plug budget hole, NSE tells state

Bourse says Sh791 billion can be raised in one to three years from the public sale

In Summary

• Securities exchange says Covid19 not such a threat on value of shares

• NSE says exit will be informed by market conditions, historical issues 

NSE chief executive Geoffrey Odundo monitors the daily trading at the Nairobi Bourse/
NSE: NSE chief executive Geoffrey Odundo monitors the daily trading at the Nairobi Bourse/

The Nairobi Securities Exchange has suggested to the government to sell its stakes in profit making parastatals to help plug budget deficits.

NSE, in a memorandum to the National Assembly Finance committee, suggests the sale of government stake in Kenya Pipeline Company, Kenya Airports Authority, and Kenya Ports Authority.

In the advisory to the committee chaired by Homa Bay Woman Rep Gladys Wanga, the Nairobi bourse also recommended the sale of National Housing Corporation.

NSE further said substantive amounts can also be raised from Safaricom, Kenya Commercial Bank, KenGen, and Kenya Reinsurance Corporation.

Ironically, these are some of the state-owned enterprises that have remained strong and with profit margins with the rest running down and making huge losses.

The loss-making entities have on many occasions relied on government bailout to sustain their operations.

The state, the bourse said, can also explore earnings in real estate investment trusts under President Uhuru Kenyatta’s Affordable Housing plan.

Others could be from roads and railway infrastructure; water, sanitation and irrigation; ports; and energy sector.

NSE thus wants the National Treasury to consider secondary listing of entities where the government has significant stake through sell-downs and IPOs.

This, the Nairobi bourse says, should be done while maintaining significant ownership and control in select entities in which it has key stake.

NSE projects that Sh791 billion can be realised in the capitalisation of state-owned entities through primary listings, secondary listings, and debt issues. 

NSE chief executive officer Geoffrey Odundo said the government can realise Sh171 billion within a year and the rest by the end of the third year.

“We are saying one to three years since some of the companies we are targeting have to go through some changes to make them listable,” he said.

The government stands to raise Sh43 billion within a year if it issues of public sale, 40 per cent of its stake in Kenya Pipeline Corporation.

This is considering that KPC had total assets of Sh136 billion as of June 2018, and an average equity valuation of Sh107 billion.

NSE says the government can net Sh34 billion from an issue of 40 per cent of its stake in KPA; and Sh400 billion in issue of 40 per cent stake in Kenya Ports Authority.

Nairobi bourse further holds that the state can raise Sh44.8 billion from 40 per cent of shares in Ketraco; Sh27.7 billion from Geothermal Development Company; and Sh5.6 billion from National Oil Corporation.

NSE says National Housing Corporation, the government stands to net Sh5 billion in real estate investment trusts.

Odundo told MPs the state can facilitate access to potential buyers such as civil servants housing scheme, housing units for essential services, and the general public.

As of June 2017, NHC had Sh6.9 billion total equity injection from the government and Sh2.1 billion in tenant purchase advances.

Odundo argued that since tenant purchase certificates are issued to home owners, it is possible to spin off the scheme into a real estate investment trust and recycle the cash into other developments.

NSE says the government can raise Sh150 billion by issuing 10 per cent of its stake in Safaricom, and retain its control at 25 per cent.

President Uhuru Kenyatta’s administration also stands to get Sh15 billion from sale of 10 per cent stake in KCB, and still retain 10 per cent control.

NSE further says Sh12 billion can be realised from KenGen with the government still retaining control at 40 per cent.

The stocks traders say Sh5 billion can be realised from full stake of 60 per cent at Kenya Re; and Sh4.72 billion by issuing 40 per cent of its stake in NHC.

They further cite a possible Sh33 billion in a medium term note to further enhance the capitalisation of the Kenya Mortgage Refinancing Company.

NSE told MPs some Sh11.4 billion can be realised in medium term note, taking advantage of its massive land bank.

A further Sh200 billion, the Nairobi bourse says, can be realised if the government issues a sovereign green bond to enhance development funding required by Nairobi Metropolitan Transport Authority (Namata).

NSE says the government can also issue a medium term note to raise Sh35.7 billion financing required by the Kenya Roads Board.

Sovereign green infrastructure bonds also stand to raise Sh180 billion in ventures under water, sanitation and irrigation.

Odundo said there is a lot of interest in the Kenyan market hence the sale would post returns in no time.

Wanga, however, raised concerns that the market is currently depressed – in the face of Covid19, and as such the sale may not give value for enterprises.

MPs Chris Omulele (Luanda) and Joshua Kandie (Baringo Central), however, cautioned the NSE to stay away from KAA citing the ongoing plans to nationalise Kenya Airways.

-Edited by Sarah Kanyara