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Tuesday, July 17, 2007

Kenya Re IPO Opens Despite Court Case

Kenya Re IPO:
It is now official that the Kenya Re IPO will continue despite the court case filed by a policyholder with the collapsed United Insurance Company that sought to stop the process. Finance Minister However said that the IPO will go one despite court case adding that they had not been served with the court order.
Mr Apollo Mburu Gichuhi moved to court and argued as follows:

-Vital Information regarding the Kenya Re Ipo had been withheld from the market i.e. Kenya Re had failed to show the true picture as the statutory manager of the collapsed United Insurance in its books.
-Policyholders of the collapsed United Insurance had not been settled.
-Main raised from the IPO would be lost in paying out claims to the United Insurance policyholders.
-CMA to quash the floatation intended to raise Kshs 2B until the plight of the collapsed UIC policyholders is addressed.

Hon Kimunya argued that they had not been served with the court order and the IPO will go on nontheless adding that all the allegations had no legal basis.

The Government plans to sell a 40% stake (240M Shares) in Kenya Re for Sh2.28 billion ($34.09 million at Sh9.50 per share. Trading is slated to start on August 27 at the NSE. Prospectus would be available to the public on Wednesday.

Placement Costs:
The case threatens to further escalate the placement cost which have so far shot above budget by 109M as legal fees to pursue the case would be needed. The increase of 109M was payments to consultants retained to advise on the process.
The overall cost of the Sh2.3 billion transaction has risen by 60 per cent to Sh289 million from Sh180 million.

Previous IPO Costs:
On a comparative basis previous IPOs cost less than Kenya Re.
-Ken Gen IPO which was valued at Sh7.8 billion cost Sh401 million.
-Eveready’s IPO valued at Sh639 million cost Sh42 million.
-Access Kenya paid out Sh40 million.
The huge increase has resulted in the overall expenses as a percentage of the gross proceeds rising to double digit range of 12.67 per cent from the previous estimates of 7.91 per cent.

Lead Transaction Advisors:
The consortium consist:
-Dyer and Blair Investment Bank
-PFK Kenya and
-QED Actuaries and Consultants r

Their costs rose by 56 per cent to Sh25 million from Sh16 million quoted in the initial bid documents. The reason given for the huge increase on work related to the defunct Kenya National Assurance Corporation (KNAC) which was meant to be part of Kenya Re but was the plan was shelved the last minute to avoid queries on Kenya Re accounts.Of interest and related to this is that the cost of the lead and co-sponsoring broker dropped substantially from Sh12 million to Sh600, 000. No reason is provided for the phenomenon drop.

Join Lead Cosponsoring Broker:
The joint lead sponsoring brokers for Dyer and Blair are CFC Financial Services and Standard Investment Bank with Suntra Investment Bank acting as the co-sponsoring broker.

Another cost escalation is attributed to the provision of registrar services and the provider is Kenya Commercial Bank, which will also act as the receiving bank. The cost spiked five times to Sh5.9 million from Sh1.5 million. The reason attributed to the increase in the provision of the service is on software licence fee.
Again this raised the question of whether the provider knew the real cost at the time of bidding for the task and why they would review the cost by such a huge margin.The legal advisor consortium also reviewed their charges by a whopping 71 per cent.

Legal Team:
Just like the lead transactional advisor, the legal team made up of Hamilton, Harrison and Mathews, Rachier and Amollo and Denton Wilde Sapte of London claim the cost increase is associated with KNAC related work.The delay of the IPO following intermittent postponement has seen a threefold increase in the advertising and public relations costs.

Advertisement/Public Relations:
The advertising cost spiked by 171 per cent to Sh57.7 million from Sh21.4 million. Lowe Scanad a subsidiary of the just recently quoted Scangroup is handling the PR job.

This court controversy adds another twist to the IPO fate and threatens to scuttle the much awaited listing. Other controversies that dogged the shares floatation in the past include a forensic report alleging grand corruption that led to the firing of the MD (Jonhson Githaka) and his Finance Controller (James Kinyua) pending investigation. The two had allegedly diverted company resorces to personal use.

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