The Kenya Power and Lighting Company (KPLC) plans to restructure its capital base through conversion of government owned preference shares into ordinary shares, and also float a share rights issue through which it anticipates to raise between Shs.7 billion and Shs.10 billion.
Addressing the media in Nairobi today, KPLC Managing Director and CEO Eng. Joseph Njoroge said the planned restructuring was aimed at rationalising the measures taken in 2003 to save the Company from financial hardships following power rationing as a result of severe drought and a depressed economy in the period between 1999/2000 to 2002/2003.
Eng. Njoroge said: “During that period, the Company incurred heavy trading losses which cumulatively amounted to Kshs.15.9 billion.”
In order to enable KPLC to remain operational and financially and technically sustainable, the Government and the Kenya Electricity Generating Company (KenGen), which were KPLC’s main creditors, agreed, together with KPLC to convert some of the debts owed to the Government by KenGen into equity, some debts owed to KenGen by KPLC into preference shares, and some debt owed to the government by KPLC into preference shares.
He added: “KPLC is now seeking to convert a large part of these preference shares through a capital base restructuring process because although the measures taken in 2003 had the effect of reversing KPLC’s loss of Ksh4.1 billion in 2002/2003 to a pre-tax profit of Ksh5.6 billion in 2009/2010, the shares have generally been perceived by both lenders and investors as ‘debt’ with a significant fixed payment obligation in form of a fixed dividend payout of 7.85% or KShs.1,250 million annually. As a result, the Company finds it difficult to raise reasonably priced funding for its maintenance and expansion activities.”
Through the capital restructuring programmes KPLC will redeem 794,962,491 Redeemable Non Cumulative Preference Shares held by the Government by issuance of 76,622,891 new ordinary shares as consideration for the redemption.
The company will also be carrying out a share split such that every one ordinary share of Ksh.20 each will be split into eight ordinary shares of Ksh2.50 each. KPLC will also float additional 488,630,245 new ordinary shares through a rights issue in which the government will not take part.
“Whilst the issue of the New Shares will increase Government ordinary shareholding in KPLC to about 69.7% for a short period, the Government has irrevocably undertaken to renounce all its rights under the proposed rights issue of KPLC, such that on successful conclusion of the issue, its ordinary shareholding will become 50.1% of total issued ordinary shares,” he said.
“Consequently, as the Government does not intend to make a take-over offer in accordance with the Take–Over Regulations, it has applied to the Capital Markets Authority for an exemption from the Take-Over Regulations under Regulation 5 of the Take-Over Regulations, as the subscription for the new ordinary shares and the redemption of the redeemable preference shares is part of restructuring of KPLC’s share capital.”
The capital base restructuring measures, when implemented will create an equitable position amongst shareholders, both ordinary and preference. The process will also help improve KPLC’s creditworthiness by reducing its leverage, reduce pressure on the company to pay a fixed preferential dividend on the RPS, strengthen its Balance Sheet to enable the Company raise funds, deepen capacity of the energy sector, and enable KPLC to obtain additional risk equity capital.
Subject to approval by the Capital Market Authority, CMA, the company plans to launch the share rights issue on 22nd November 2010 and commence offer of the shares on 25th November 2010, which will run until 15th December 2010.
“Besides giving the shareholders the opportunity to increase their shareholding by taking up their rights, KPLC anticipates to raise between Ksh.7 and Ksh10 billion capital from the exercise. A more precise figure will be announced once the price of the shares is determined after approvals by shareholders and the CMA,” said Eng. Njoroge.
Funds raised from the rights issue will be invested in the refurbishment and further development of the power delivery system, in the endeavor to meet demands of an expanding economy. Targeted projects will help KPLC reduce losses in the system as well as enhance quality and reliability of power supply to all categories of customers throughout the country, he concluded.
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