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Monday, April 16, 2012

KQ Rights Issue 2012

Excerpts from the Information Memorandum issued on 30th March 2012
Italics are calculations/assumptions/questions I have done/made/asked based on the information provided in the IM. Please let me know of any errors.

6.7 Pertinent Financial Data

Entitlement Ratio = 16 New Shares for every 5 Shares held
Net Asset Value (NAV) as at 31 March 2011 = KES 23,090,000,000
Offer Price per share = KES 14
Total Number of issued and fully paid up shares before the Rights Issue* = 461,615,484
NAV/Share = 50/- (before the Rights Issue)

Basic earnings per share (EPS)* = KES 7.66
Dividend Per Share (DPS)* = 1.50
Market capitalisation on 29 February 2012 = KES 8,032,109,422

Number of New Shares on offer under the Rights Issue = 1,477,169,549
(This is 3.2x the current Issued Shares)
Gross proceeds of the Offer = KES 20,680,373,686
Approximate net proceeds of the Offer = KES 20,059,959,011

Total number of issued and fully paid up shares after the Rights Issue assuming full subscription = 1,938,785,033

Fully paid up share capital of KQ post Rights Issue assuming full subscription (inclusive of share premium) = KES 22,988,451,106

6.5 Underwriting of the Rights Issue
Conditional, inter alia, on receipt by the Company of the Major Shareholder Undertakings and on the Minimum Subscription Level being met, the Underwriter has agreed, pursuant to the terms of the Underwriting Agreement, to purchase the Underwritten Shares. The Underwriter is not related to KQ but provides banking and other credit related facilities in the normal course of business. KQ has agreed to pay to the Underwriter an underwriting commission of 2 per cent of the gross value of 30,000,000 New Shares.
The Underwriter may enter into sub-underwriting arrangements with third party investors, including Eligible Shareholders and will pay any commissions due under such arrangements from the commission it will receive from the Company.
Shareholders should note that the Rights Issue has not been fully underwritten. The Underwriter has only agreed to underwright the Underwritten Shares and will only be underwriting a maximum of KES 420,000,000 under the Rights Issue. As such, any shareholder or investor trading in the Rights should beware that the Rights Issue may not become unconditional.

KES 420mn is only 2% of the total amount KQ wants to raise. That is a very low level of underwriting.

Underwritten Shares: subject to the Foreign Investor Requirements and the Foreign Investor Regulations, a maximum of 30,000,000 New Shares less the aggregate number of New Shares allotted to Foreign Investors and Regional Investors pursuant to the Initial Allotment, the Excess Allotment and the Rump Allotment (save for those allotted pursuant to the Major Shareholder Undertakings)

If we deduct "the aggregate number of New Shares allotted to Foreign Investors and Regional Investors pursuant to the Initial Allotment, the Excess Allotment and the Rump Allotment (save for those allotted pursuant to the Major Shareholder Undertakings)" from the 30,000,000,000 underwritten shares then Citibank need not even take up 30,000,000 shares even if there is an under-subscription after foreign investors & EAC investors are accounted for.

12.3 Direct Equity Investments of directors
Table 22: Directors’ shareholding in KQ as at 31 December 2011
Permanent Secretary to the Treasury* = 106,171,561 (26%)
These KQ shares are held by the Permanent Secretary to the Treasury (which is a body corporate) as custodian for the Government of Kenya.

Evanson Mwaniki = 10,090  = (0.0022%) = KES 141,260
Alex Mbugua = 6,054  = (0.0013%) = KES 84,756
Ayisi Makatiani = 5,700 = (0.0012%) = KES 79,800
Dinesh Kapila = 4,036 = (0.0009%) = KES 56,504
Cyrus Njiru = 1,000 = (0.0002%) = KES 14,000
Salma Mazrui-Watt = 1,000 = (0.0002%) = KES 14,000
Titus Naikuni = 0 (Zero) = (0.0000%) = KES 0

Source: KQ management
Price to calculate value is 14/- per share

37 c) Remuneration for directors and key management compensation
Directors’ remuneration:
As executives              2010: KES 63,000,000 2011: KES 66,000,000
As non executives        2010: KES 10,000,000 2011: KES 12,000,000
Non-monetary benefits 2010: KES 5,000,000   2011: KES 5,000,000

Page 93 of the IM "The Board is made up of a non-executive Chairman, eight non-executive directors and two executive directors". The executive directors are:
Titus Naikuni
Alex Mbugua

11.2.3 Shareholders who do not subscribe for New Shares in the Rights Issue will experience dilution in their ownership of the Group
If Eligible Shareholders do not take up their entitlements to New Shares under the Rights Issue by the latest date for application and payment in full in respect of their entitlements to New Shares that are set out in this Document, their proportionate ownership and voting interest in the Group will be reduced, and the percentage that their Ordinary Shares represent of the ordinary share capital of the Group will be reduced accordingly.

To maintain the shareholding in percent i.e. not be diluted, a current Shareholder with:
  • 100 shares (valued at KES 1,400) needs to exercise 320 Rights for KES 4,480.
  • 1,000 shares (valued at KES 14,000) needs to exercise 320 Rights for KES 44,800.
  • 10,000 shares (valued at KES 140,000) needs to exercise 320 Rights for KES 448,000.
  • 100,000 shares (valued at KES 1,400,000) needs to exercise 320 Rights for KES 4,480,000.
Using KES 14 as the approximate price per share on the NSE.

If a current Shareholder is unable to exercise any of the Rights & the Rights Issue is fully subscribed the dilution in ownership will be 5 divided by 21 multiplied by the percentage ownership pre-Rights.

5 (pre-Rights shares) / 21 (post-Rights but 16 bought by others) x 1.00% (pre-Rights) = 0.238% (post-Rights)
[Assume 1% ownership pre-Rights = 4,616,154 shares]

Page 101 of the IM “Bilateral Air Service Agreement” shall mean any agreement made by the Government of the Republic of Kenya with the authorities of any other state pursuant to which the Company shall have been granted the right to operate scheduled passenger and air freight services between Kenya and that contracting state on terms, inter alia, that the Company shall remain Substantially Owned and Controlled by Nationals of Kenya.

What happens if "the Company shall remain Substantially Owned and Controlled by Nationals of Kenya" is not the case under the various BASAs that require it?


Anonymous said...

26 million rights remained unsold on the last day of trading! Many more shareholders would not have bothered with the price at KES 0.05. Will new subscribers take up the shares not being picked by existing shareholders?

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