Listed companies in which the government has a controlling stake or major influence have shed Sh408.5 billion in value this year, raising fears of undervaluation when the State offers additional parastatals for listing under its recently announced privatisation plan.
The decline in the valuation of the companies, which include Safaricom, KCB Group, KenGen, Kenya Power, Kenya Re, East Africa Portland Cement Company and Uchumi Supermarkets, is part of a wider bear run at the bourse, which has on the whole shed Sh518.4 billion in investor wealth since January.
Others are Kenya Airways and Mumias Sugar Company, which remain suspended from trading at the Nairobi Securities Exchange (NSE), effectively locking in investor wealth valued at Sh22.17 billion.
The nine entities opened the year with a combined market capitalisation of Sh1.098 trillion, which by the close of last week had dropped to Sh689.1 billion, largely on account of a share price erosion on the stocks of Safaricom, KCB and KenGen.
The prevailing tough market conditions have complicated plans by companies hoping to use initial public offerings (IPOs) at the NSE to raise capital or divest stakes, owing to fears that the sellers would not realise a fair value for their equity.
The Treasury on November 27 made public the 2023 Privatisation Programme, listing some 11 State-controlled entities with an asset value of more than Sh190 billion for sale.
“Overall investor confidence is weak at the moment—even some of the blue chips are trading at massive bargains,” said Rufus Mwanyasi, chief executive at advisory firm Canaan Capital.
“Some names are exciting (Kenya Seed Company, Kenya Literature Bureau) but not enough to reignite the market. This is not the 2006-early 2008 era of cheap credit and a booming economy…today, the economic backdrop is uninspiring with high taxes and interest rates and besides, globally, IPO markets have cooled since late last year.”
The entities lined up for sale include Kenya Pipeline Company, Kenyatta International Convention Centre, Kenya Literature Bureau, New Kenya Co-operative Creameries and Kenya Seed Company (53 percent State-owned).
The others are the National Oil Corporation of Kenya, Rivatex East Africa Ltd, Numerical Machining Complex, Mwea Rice Mills, Western Kenya Rice Mills and Kenya Vehicle Manufacturers.
The government has until December 11 to collect public views on the proposed privatisation of the entities, after which it will provide further clarity on the ones to be divested through public listing on the NSE.
Privatisation through listing on the NSE can, however, only apply to firms which are profitable in line with rules governing IPOs, with cash-strapped parastatals likely to be sold or leased to strategic investors.
The sale of some of the publicly owned entities has for long been seen as one of the ways of reviving the fortunes of the bourse, which has not had a major IPO for years.
In the mid-2000s, the NSE was energised by a succession of IPOs, which introduced a new crop of investors into the market, pushing up trading activity, price discovery and minting new millionaires.
The IPO boom saw the State sell stakes in firms such as Safaricom, KenGen, Mumias and Kenya Re, while the private sector brought in the likes of WPP ScanGroup, Co-operative Bank of Kenya, Eveready East Africa, Access Kenya (delisted in 2013) and Britam Holdings.