KenGen’s $1.65 Billion Rights Offer to Quadruple Shares

Kenya Electricity Generating Co., the country’s biggest power producer, will more than quadruple its shares in issue with a $1.65 billion rights offer to fund an expansion program, acting Managing Director Simon Ngure said.

The state-controlled company, based in Nairobi, plans to increase the number of outstanding shares to 10 billion from 2.2 billion once it gets the go-ahead from the government, Ngure said, detailing for the first time the number of shares to be issued. KenGen said last month it will raise $5.5 billion through a mix of 70 percent debt and 30 percent equity to finance a tripling in electricity output to 3,379 megawatts.

“Once we receive government approval for that, then we will do a rights issue to bring in about $1.65 billion in equity,” Ngure said in an interview on Nov. 6. KenGen will also take on about $3.85 billion of debt, he said.

Kenya plans to spend as much as $15 billion over the next 40 months to increase power output by more than 5,000 megawatts and help accelerate growth in East Africa’s biggest economy, Energy Minister Davis Chirchir said last week. Most of the power, which will add to existing capacity of 1,700 megawatts, will be produced from coal, gas and geothermal sources, he said.

KenGen will probably issue the new shares in stages to enable the domestic market to absorb the offering, said Kuria Kamau, an analyst at Nairobi-based Kestrel Capital (East Africa) Ltd. A once-off sale to raise $1.65 billion (141 billion shillings) would dwarf the 20.7 billion shillings that Kenya Airways sought last year in the biggest single offering of stock to existing shareholders by a Kenyan company.

Phased Approach

“I don’t think it is something they will do in one go, they may do it in phases over time like Kenya Commercial Bank,” Kamau said in a phone interview. Kenya Commercial Bank Ltd. raised 20 billion shillings in three rights offers in 2004, 2008 and 2010.

AngloGold Ashanti Ltd., the world’s third-biggest gold producer, carried out the continent’s largest rights offer since at least 2000 when the Johannesburg-based company raised 13.5 billion rand ($1.32 billion), according to data compiled by Bloomberg.

KenGen appointed transaction advisers including KPMG, Johannesburg-based Absa Capital Ltd., Nairobi-based Dyer & Blair Investment Bank Ltd. and Hamilton Harrison and Matthews in May as it prepares to seek regulatory approval for the rights offer, he said.

More Shares

“We need to raise more equity now so that we can take on more debt,” Ngure said. “To do a proper rights issue we’ve got to add more authorized shares.”

Talks on whether the government, which owns 70 percent of KenGen, will take up its rights during the offer are continuing, he said.

The company plans to generate an additional 2,500 megawatts of electricity by 2017. It currently produces 1,239 megawatts. About 960 megawatts of the extra output will come from coal, 700 megawatts each from gas and geothermal sources, 120 megawatts from wind and 24 megawatts from hydropower, Ngure said.

KenGen’s shares have surged 87 percent this year. The stock closed 0.9 percent lower at 16.45 shillings today after falling as much as 3.6 percent. The FTSE NSE 25-Share Index has gained 38 percent since Jan. 1.

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