Court Allows Kenya Re IPO to Continue

The court yesterday allowed the Kenya Re IPO to continue by throwing out a court suit filed by a one Mr. Apollo Mburu Gichuhi on behalf of the collapsed United Insurance policyholders.
Prospectus:
The prospectus was released to the public though there were concerns that the vendor did not make public the forensic audit report that tried to delve into the corruptions allegations at the company. The prospectus said that potential investors can pick up upto 16 documents for inspection from the company head office though many feared that the audit report might not be among them.

IPO Debut:
The Kenya Re IPO, which debuted in the primary market yesterday, offers investors a chance to buy a stake in the company at a price of Sh9.50 per share. The offer draws to a close on July 31, with trading at the Nairobi Stock Exchange set to commence on August 27. The IPO involves the sale of 240 million shares valued at Sh2.3 billion to the public which is equivalent to 40% of the company.
The company assets are worth 12.8B. The company in the last financial year made a pre-tax profit of Sh700 million on a revenue base of more than Sh3 billion.

Allocations:
Public-47%
Insurance Companies-20%
Qualified Institutional Investors-30%
Kenya Re Employees-3%
Delivery Vs Payment:
The IPO offers institutional investors a chance to pay for shares only allocated to them thus reducing on the refund payments as other investors wil be left to grapple with underallcoation and chasing refund payments. Why this preference???

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.

NSE:

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.

Registrars:

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.

Controversies:

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.

Kenya Re to employ two top managers before IPO in April

IPO:
The sale of Kenya Reinsurance Corporation shares is likely to start in April as scheduled, Investments secretary Esther Koimett has said. However, the Government has adopted a wait-and-see attitude after the firm yesterday announced its intentions to fill the vacant positions of managing director and head of finance. The holders of the two posts were sacked last month to pave the way for investigations into allegations of financial impropriety.
The sale of the corporation’s 60 million shares was expected to be concluded by end of April but might be delayed to give the company time to reorganise its management. On January 11, the Kenya Re board terminated Mr Johnstone Githaka’s and Mr John Kinyua’s contracts. They were respectively managing director and head of finance.
Both were under suspension pending investigations.

Summarily sacked :
“They were summarily sacked and now the board has opened the positions to the public,” said Mr Evans Amalemba Juma, the acting managing director. According to Ms Koimett the need to fill the positions before listing is meant to appease investors by adding certainty in the corporation’s affairs. “We could not list with an acting managing director,” she said.
Those interested in the job have until February 16 to submit their applications to the board vie e-mail to Business Ideas, the company executive search and selection partners.
Ms Koimett and Mr Juma are optimistic the listing of the shares will go on as scheduled.
The sale is expected to raise money to cover part of the Sh18 billion budgetary deficit for the 2006/07 financial year.

The Government has already raised Sh4.5 billion from the sale of Mumias Sugar Company shares.

“We are sure it will go through before the end of April,” said Mr Juma, echoing earlier sentiments by Finance minister Amos Kimunya when he disclosed that the Government had launched investigations on corruption allegation at the parastatal.