Monday, May 22, 2006

The Kengen setup

Our high expectations about Kengen must ‘fail’ for the good of the country’s future IPO's and stock exchange.

Politics showed its’ hand when the share allocation was made democratic as possible. As a result institutional and foreign investors were short-changed in the process which was now tilted to favour wananchi. The hunger to own a new company, cheaply available at the stock exchange followed and the flames were fanned by banks, employers and financial institutions who availed easy cheap loan to borrowers to engage in the risky business of share buying.

Meanwhile, large investors set aside millions of dollars and shillings for months leading to the IPO, only to receive a maximum $1,000 worth of shares when the results were announced.

Future IPO’s may not be as popular with wananchi as Kengen was – and the government will need the support of these financial, institutional, and foreign investors to participate in these subscriptions e.g. of Telkom and other state corporations.

Most important is that investors need a reality check – to learn that there is no sure thing about share prices - (even Safaricom). If you buy a share at 11.90 today, to sell it at 60 tomorrow it is only possible if there’s someone who believes that it is worth 100, and so will happily buy it at 60. The same lesson should be applied to banks who engage in such risky lending – and can now see that there are investors who will not buy our shares at 60 or 38 or maybe even 25 shillings.

We all bought Kengen with thoughts of Kenya Airways and Mumias-like appreciation in prices, but probably forgot that these shares were un-loved until only recently, and languished for some years after their IPO.

12 comments:

sassy said...

I believe as much as the IPO was anticipated by local investors especially individual investors-major losers were foreign and institutional investors who in the future may dismiss Kenya IPO's. We need foreign capital injection in the future and Kengen IPO should be a lesson that we should have guidelines on how much can be offered to individual,institutional investors both locally and internationally

pesa tu said...

ahh.. u r getting bearish.But the current bull still has some legs to run.As long as annual inflation is at 14% and T-Bill's at 8% it makes sense to buy shares.
Because any gains made on the billsare wiped out by inflation just look at Zimbabwe stock exchange.

VItuVingiSana said...

I disagree coz when the government wants to sell its stake the benefits should first accrue to the country's CITIZENS.

Nevertheless, POLITICS should not play into the picture i.e. the "change" of allocation criteria was WRONG since that decision should no be changed unless there is an absolute need for it.

If the institutions knew of the allocation then they would have reinvested the funds elsewhere.

Brokers - They should have submitted application early & not on the last 2 days.

Banks - It is a business to loan money. Their money, their risk.

CDSC - They should have encouraged the public (together with the NSE, CMA, brokers & Banks) to open up CDS accounts PRIOR to the IPO. That would have eased the backlog.

CMA - Fumbled the IPO coz they should have had a longer period (6 weeks) for the IPO. They should have extended the date BEFORE trading commenced to give time to KCB, Brokers & CDSC to make sure refunds & shares were credited to the accounts.

Government - Why did they sell only 30%? They should have sold more shares at a higher price! There was enough hype BEFORE the price was set to figure out it was going to be over-subscribed! Or they should have underwritten it for a guaranteed subscription!

Investors - Typical last minute Kenyan style!

Mitzy said...

Are there any plans to digitize the NSE? Everytime I see pics, especially during this KenGen frenzy, its all EZ boards, felt pens/magic markers and dusters. Granted its a step up from chalk boards, but considering how much money is transacted on a daily basis, isn't it time the NSE stepped up and invested in real time electronic boards? Please blog on this subject if you have info. Thanks!

Ig-know-rant said...

You can imagine how fat the stock brokers' nominee accounts grew during that period when they were holding institutional investors money.

Orwells_Ghost said...

The main problem with the KenGen offer, in a mega view, is that government still owns 70% of the company.

It might seem a sure bet that energy will always produce big profits in Kenya. A quick look at K P & L and Kenya Pipeline might sober this idea, insofar as perennial political interference goes.

Britons who invested in the "sure thing" of British Telcom might also have a word of caution, for much the same reason.

However a share holding nation sure beats a share watching one, so in this sense it's hopeful.

bankelele said...

sassy: I believe instituions & foreign investors will need some assurance of allocations before they participate in any future IPO's

pesa tu: maybe bearish, but still keeping my shares for the long term

VItuVingiSana: There was enough of Kengen to go around, maybe the price should have been higher - and book building would have discovered the true price of Kengen. As for loans, I blame the CMA for not educating the public on borrowing for speculative share purchases

Mitzy: No official plans to digitize. But reading NSE Chairman Jimnah Mbaru's book of essays from his previous stint revealed that he wanted the NSE to move to its' own bigger building and cross list with the Johannesburg Exchange - maybe these moves will usher in a a digital era

Ig-know-rant: It's an open secret now

Orwells_Ghost: The government control and fact that Kengen is still under the notorious state corporation act should have been highlighted more during the IPO

myself said...

This kengen issue seems to have gone against everyone's prediction: a price fall after the first day of trading. The kenyan stock market seems to thrive on only one thing: speculation; fundamentals seem to have no place in our market. How long will it support this?

soon to be blogger said...

Back to HFCK speculation.... Apparently Transcentury pulled a media show in order to prove that HFCK's association with Transcentury was what drove the share price upwards. CDC have bought their story after HFCK share fell on 'cancellation of the deal' and the deal will go through anytime now based on the initial price negotiated (Sh 12)... It has to be soon so as to catch the media/speculators off guard!

mashatall said...

soon to be blogger, are your sources credible??? ama u r pulling a fast one on us? bought HFCK and still holding on tight coz whether Transcentury buys in or not, mortgage backed securities will make the mortgage market more vibrant. so long term HFCK is a good buy, and i will still buy some more even with the share price still going dowm.

soon to be blogger said...

mashatall, my sources are very credible. And now with HFCK announcing a 300% rise in quarter 1, 2006 earnings, it is a definite BUY at the current price of 23.

gathinga said...

soon to be blogger, are the negotiations on HFCK still on? this is important as it constitutes insider info!!

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