Massive Response to Kenya Airways Shares Offer

By Russell, Rosalind | African Business, May 1996 | Go to article overview

Massive Response to Kenya Airways Shares Offer


Russell, Rosalind, African Business


The flotation of Kenya Airways shares appears to have caught the public imagination to such an extent that the Nairobi Stock Exchange is in danger of being overwhelmed by new business.

March saw the launch of the big gest share issue in the history of the Nairobi Stock Exchange. In a four-week flotation, Kenya's national flag carrier, Kenya Airways, expected to sell off some 235m shares, or 51% of its share capital, at an offer price of Ksh11.25 each.

The privatisation will reduce the Kenyan Government's stake in the airline to just 23%. In December last year, a 26% shareholding in Kenya Airways was sold to the giant Dutch airline KLM. In the current share issue, 34% of the company's share capital has been earmarked for Kenyan institutions and small domestic investors, 14% for foreign investors, and 3% for company employees.

Brokers coordinating the issue have reported strong interest from both domestic and foreign financial institutions. "It has exceeded our wildest expectations," reported an analyst at the Nairobi office of Barclays Investment Services. But institutions were reluctant to part with their cash until the deadline for applications, set for April 19, drew closer.

"Institutions will want to hold on to their funds for as long as possible," noted a source at stockbrokers Shah Munge & Partners, one of the leading sponsors of the flotation. "We're expecting a surge in demand from the big investors towards the close of the offer," he added.

Thanks to an aggressive advertising campaign, the share issue has also caught the imagination of the Kenyan public. Small investors can apply for a minimum of 100 shares. The level of enthusiasm seems to have taken everyone by surprise. Stocks of application forms and prospectuses made available to the public at banks countrywide, were depleted on the first day of the issue.

The privatisation of Kenya Airways is the culmination of a five-year commercialisation process which began with the appointment of a new Board of Directors in April 1991. The airline had suffered 14 consecutive years of losses since its incorporation in 1977 as the Kenya's state-owned flag carrier, and its reputation was at an all-time low.

Through a programme of stringent cost-cutting, better aircraft utilisation and staff training, the new management team helped to move the airline into profit by 1993, and the following years have seen a continued improvement in its operating and financial performance.

But the turnaround in Kenya Airways' financial fortunes was not entirely attributable to the changes put in place by the new Directors. In 1994, the Kenyan Government agreed to take over huge debt arrears run up during the global airline industry recession of the early 1990s. In a restructuring program completed in mid-1995, the Government bailed out the airline to the tune of KSh4,294m.

From a loss before taxation and unrealised exchange losses of KSh53m for the financial year ending March 31, 1992, Kenya Airways moved into the black the following year, posting earnings before taxation and unrealised exchange losses of Ksh237m. …

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