Wednesday, July 11, 2007

Bypass Kenya Re IPO?

The Kenya Re IPO opens in a week (July 18) and, it's a good time to assess the potential gains for a retail investor who subscribes.

While the prospectus is not yet out, all signs are that this will be a massive Kengen-like IPO, a quasi-monopoly with good growth prospects & profits that will stir the investment market. (I was wrong on most counts about the Eveready IPO)

But unlike Kengen, corporate and institutional investors have been allocated a good chunk of the cake, which they won't have to fight over with retail investors. So what's left for retail?

56,000 shareholders: According to reports, retail investors have been allocated a pool of 47%. That comes to 112.8 million shares of the 240 million shares offered. So 56,400 is the expected number of
retail investors [buying 2,000 shares at 9.50 each = Kshs 19,000 ($283)]. But Kengen drew many more than that and these were retail investors applying for several thousand shares (above the Kengen minimum of 5,950 shillings). And with so many pyramids schemes crashing down, those lucky to have got any cash out will hope to repeat the magic rise of Kengen on day one on listing. Plus commercial banks are still flush with cash and will probably offer more loans to buy shares.

oversubscribed = refund: budget a minimum two hours for queuing, filling out forms. IPO opens on July 18, closes on July 31. Then wait for about a month, till mid-August for results with the new shares expected to list towards month end (August 25 or September. Depending on the retail surge, one can expect between 1/3 and ½ of the shares applied for – meaning you pay Kshs. 19,000 for 2,000 shares but end
up with 700 shares worth Kshs. 6,650. This is followed by another hour visit to the stockbroker to trace the inevitable refund cheque in September.

Is it worth it? Probably, for Kenya Re. But why not sit out the Kenya Re IPO and wait for the shares to list at the end of August? The price will have changed, but if it's around 15 shillings, then you can buy as much as you want just by calling your
stockbroker and placing an order – by passing the headache of an IPO? 19,000 shillings will not earn much in any savings account, but at least the money is
available and within reach – as perhaps other share prices will drop within reach as investors cash out to buy into Kenya Re.

Still, it is insulting that some shareholders think of retail investors as emotional cattle who buy and sell on whims and don’t do any research and analysis. And
we don’t have the extra privilege granted to institutions who, this time, won’t have to pay any money until they get their share allocation confirmed.

19 comments:

don said...

2000 shares, would be worth it, if one did not have to stand in line.

Insulting... well what % of retail investors do you believe are knowledgable enough?

As for paying once shares are allocated. This sounds like it will be cheaper for the issuers that giving refunds. So hopefully it a "trial run" to a universal rule where nobody pays until shares are issued. Only problem is how to guarantee the money is "in the bank" for the shares in the case of retail investors.

coldtusker said...

33% to 50% of the application?

Nope... I think the allocation will be between 200 to 500 shares thus 10% to 25% of the application...

I think the most will apply for the minimum but spread over many, many accounts!

bankelele said...

don: you're not going to get 2,000 unless you're a QII.
- for issuers they shoudl explore electronic payments as an alternative for retail investors to cheques

coldtusker: I think your assement is more correct. So what will we get for safaricom - 50 shares? The problem with mutiple applications (in different names) is chasing down each CDS ac, payment, refund cheques, etc. One has to wait for the rush to die down, months later

MainaT said...

Peeps seem to be overlooking something else that has changed since AccessKenya and now Kenya Re. If the QII and others are given preference pre-IPO, who will be in the 2ndary market for retail investors to offload their shares? This translates to lower returns as well i.e. probably no more 100% returns. 2ndly, If you take into account that you only get a 1/3 of what you applied for, even if price doubles, your profit is not 100%, its profit/19000 i.e. a lower return.

stevek said...

I think that the pay v/s the delivery method for institutional shareholders is a great system-treasury is avoiding the Kengen like scenario where the oversubscription led to a massive liquidity crunch in the interbank market.

We can concur that not all, but the MAJORITY of the retail players should be classified as speculators and not real investors. Whereas the latter are guided by fundamentals, discipline and research, the former look to make a quick buck and their irrational knee-jerk reaction approach to investing causes unnecessary volatility that causes sharp price movements which completely throw equity values out of whack. An underdeveloped market such as ours needs investors who have a sanguine interest and approach to investing in order to increase its vibrancy and maintain optimum growth levels.

R said...

I like what our broker is advising... watch the stocks that folk will sell in order to get a piece of Kenya Re and buy those.

Judging by the NSE's recent IPO history, I think that's pretty solid advice.

Jakarumba said...

It seems institutions are getting tired of the small retail investors, the latest being Drummond Investment Bank, they have decided to deal with those investing a minimum of 100k. They now join the likes of African Alliance, Sterling, Kestrel and a few others.
Though I dont agree that al retail investors are irrational.

gishungwa said...

Hmm been following with interest. I like what R is suggesting you could make some money off what people are too keen to dispose for the promise of Kenya Re. Then again most of us are out for the quick buck so we will get the 200-500 at 9.50 and sellout immediately we think it has gone high enough. I dont think most of the investors are knowledgeable enough, you and others do make it better. Thank you.

Jean-Antoine said...

Hello,
Did anybody heard about a possible sale of a 40% stake in Telkom Kenya?
There is even a petition against it: http://www.petitionspot.com/signature/TELKOMKENYA (which I do not support).
Appart of it, I strongly support electronic payment for IPO subscription and sooner or later, many retail investors will certainly experience negative ROI (what I don't wish).
A possible way to reduice the share taken by institutional investors is simply to raise the IPO price ;o) (and make it a bad deal for any new comer, but which retail investor would know that?)
One thing is true, retail investors often follow advices from "professionals" (or wannabies).
And a good sign for retail investor that a deal is fair is when institutional investor are investing as well.

E-Nyce said...

...a quasi-monopoly

I'm glad someone finally admitted this. In writing.


stevek is right on the money about retail investors. But there is logic to their movements: All Kenyan stocks follow the School-Fees Index, not the S&P!

Mashatall said...

Retail investors make the market more vibrant and cannot be simply wished away from investing.How will the big institutional investors ensure they make good returns if they do not have someone to dispose their shares off to? I have always found that argument that we do not retail investors a little bit too far fetched, and it is time we levelled the playing ground for the small guy.Look at the US market and you will realize why the markets perform very well, with everybody playing at the same level.maybe its time that our companies also find a better way of communicating with their shareholders through websites and dividend reinvestment plans, where some of us who do not want cheques can opt to buy more shares, receive our money through EFT or vote by proxy online.

don said...

Agreed, retail investors are invaluble to maintain liquidity. And unless anyone can see the future... we are all speculating. Some BETS are just better informed that others.

Bottom line is the price is simply a reflection of what the market is willing to pay not what the company is worth in any market(see tech bubble for US example). Even with all the information in the world, if you do not account for the speculator factor... good luck. The only way out of that is to get into the income game... hold and take in divends or just go with bonds to maturity.

alexcia said...

banks

How much money do you have to put in to be classified as "institututional investor"?

Propa said...

Kenya Re is a dog. I wouldn't tough its festering carcass with a ten-foot pole.

Anonymous said...

And ??
Is that supposed to be good advice or what?
"Kenya Re is a dog. ..." please explain.

propaganda said...

It's not advice, Anonymous: It's an opinion. You want advice, don't look at me.

propaganda said...

Well, okay. Here's some good advice: keep your money in your pocket. Here's part of your explanation. PS: Be careful about taking advice from anonymous guys on the Internet.

propaganda said...

dog [dawg, dog] noun, Slang An investment that produces a low return or a loss.

Anonymous said...

k-re is a real dog-how,even in hell,can they take all that money to give us 333 shares?just wanted to invest with our money in the name of shares

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