Last week, Kenya’s stock market was set tumbling to the lowest this year as investors sold off shares to reinvest in the largest Initial Public Offering (IPO) ever- Kengen. The 20 Share index dropped to 4%, its lowest point since December 2005.
Kenya electricity Generating Company (Kengen), Kenya’s producer of 80% electricity in the country, produces both hydroelectric and geothermal power. This year the government announced its decision to offload 30% of its shares to raise equity through the public. The deal, valued at Kshs. 7.8 will see close to 700 million shares being sold off to the public in what is believed to be the largest IPO ever and the first under a new government.
One advantage with the offer is that the large and the small investors will equally have an opportunity to participate. This is due to the fact that the shares will be trading in batches of 500, 10,000, and 100,000 meaning that one can afford shares with as little as Kshs. 6,000 whereas others will have to spend close to Kshs. 1.2 million. This is in contrast with previous agreements where investors subscribed for the share offers. This would have ruled out the deal meaning that the lot would only have benefited a few mighty fellows.
Having worked in a monopolistic setting, Kengen enjoys a strong balance sheet. To have a stock trade at a discounted price of Kshs. 11.9 is quite low. It thus offers investors with very good short and long-term gains. Its strong management team that oversees the concurrent management of 4 projects (Sondu Miriu Olkaria II, Geothermal Development and Explorations) sets the company on a high scale.
Between March 20th and April 12th this year, investors will have the opportunity to buy the Kengen stock that has par value of Kshs. 2.50 at the pre-market price of Kshs. 11.90. Currently, we are witnessing a dual drop in prices of most shares trading at the secondary market. The drop is even set to decline further as many belt out for the entry of Kengen which is anticipated to have created enough liquidity prior to the offer but almost all stocks have been affected to a small extent. Most affected are the low prices stocks like Uchumi, which has slipped drastically from a high of Kshs. 23.00 to a low of Kshs. 15.00 in a period of less than a month.
Before the April 12th closure of the IPO, most stocks will still readjust further driving them to their actual values.
Many willing investors are concerned about their inability to acquire the number of the shares they intend to purchase. A person with Kshs. 30,000 cannot enjoy the privilege of buying 3,000 shares in batches of 500. Such a person will only have the opportunity to buy one batch at Kshs. 6,000. What many have not realized is that besides the Central Depository and Settlements Corporation’s (CDSC) rule that one can only open one account, the Central Depository does not bar people from jointly holding accounts.
There stands a better way of cumulating stocks jointly without having to miss out on this opportunity. If you have Kshs. 30,000, you can liaise with three other colleagues having an equal disposable amount based on mutually agreed terms and open a joint account to achieve the required target.
If this is not possible, you can join an existing club that has like-minded people as you and top up to their year to date contributions. One advantage with this is that you get to join people who have already set up everything in place ranging from initial cash cows, the constitution to legal requirements.
Secondly, one can set up an investment club. This may take long to the extent that by the time you are planning to start trading, you may not have agreed on many key issues required in execution of key decisions.
Still another possibility is group mergers. If your group is small and valued at Kshs. 600,000, you could consider merging with another group with an equal value, purchase the stocks and split later after the sale. It is important to note that trust should play a major role in this deal as the two parties may not be very familiar with each other.
As you put your fortune in this IPO, it may pay out to check what the secondary market has to offer. As many investors divest with the hope of cashing in on Kengen, the low prices of other stocks may pay out if bought at their lows during this period.
Warren Buffet, the popularly known Oracle of Omaha picks his stocks while the prices are tumbling down. Perhaps, that’s what makes him the richest investor in the world with his Berkshire Hathaway stocks trading at more than US$ 28,000 per share. One of his most famous quotes on the stock market goes like, “Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.”
By Michael Musau
CEO Emerging Africa Capital
Licensed by The Capital Markets Authority as Investment Advisers
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