President William Ruto has thrown the State’s weight behind the struggling Nairobi Securities Exchange (NSE), in what is possibly the biggest indicator of the fiscal direction the country will take in the face of the mounting public debt burden, a weakened Shilling, and record-high inflation.
Speaking at an event to discuss reinvigorating the bourse on Tuesday, October 5, Ruto announced that the State would reduce its stakes in 5-10 ‘mature’ companies by listing them on the NSE within the next 12 months, to raise much-needed cash.
The move represents a policy break from the previous administration, led by former President Uhuru Kenyatta, which was reluctant to reduce its positions in key companies, citing strategic, regulatory and national security considerations. As Business Today reported in 2021, the National Treasury declined to float stakes in various companies and parastatals on the NSE (with the exception of KenGen) – after NSE CEO Geoffrey Odundo advised the government that it could potentially raise Ksh792.6 billion by doing so and help ease the cash crunch brought on by expensive debt repayments.
“We will embark on privatisation of public corporations a way to generate wealth. We intend to get between 5-10 mature public sectors companies listing at NSE in 12 months,” President Ruto disclosed.
The NSE has seen a prolonged bear run as foreign sell-offs and Fed interest rate hikes combined to hit frontier capital markers including Kenya hard. The NSE in the first half of the year was ranked as the third worst-performing major stock market in Africa, a situation exacerbated by a dearth of new listings. For the half-year, it posted a return of negative 30 percent in dollar terms – wiping out Ksh789 billion of investor wealth.
The NSE had proposed that the government sell part of its stake in Safaricom and listed firms including KenGen, Kenya Commercial Bank (KCB) and Kenya Re, as well as fresh listing of cash-rich parastatals including Kenya Ports Authority (KPA) and Kenya Pipeline Company (KPC).
“Listing of companies and selling more stake is a clear intervention to raise internally raise money and reduce the debt, you can even use some of the money to offset the expensive debt,” Odundo told a Parliamentary committee.
The NSE noted, for instance, that the State could potentially raise Ksh150 billion by reducing its stake in Safaricom to 25 per cent from the current 35 per cent. In 2008, the government raised more than Ksh50 billion after selling a 25 per cent stake, or 10 billion shares, in Safaricom. Reduction of the government’s stake in KenGen from 70 per cent to 40 per cent can rake in Ksh12 billion for the State.
The sale of 10 per cent stake in KCB by the government could potentially raise Ksh15 billion while, according to the NSE, a Kenya Ports Authority (KPA) Initial Public Offering (IPO) could raise Ksh400 billion through the sale of a 40 per cent stake. The listing of part of KPC shares would be expected to raise Ksh43 billion.
The National Treasury, however, turned down the offer explaining why it was important for the State to maintain its positions in crucial public assets.
“We can get money, yes but we can lose what we have wanted to control for a long time. These are conversations that we need to have before listing,” Stanley Kamau, Head of Public Investments at the National Treasury told the Finance and Planning committee of the National Assembly at the time.
“I don’t think the government wants to go below 50 percent at KPLC given the kind of services it offers. If the government loses control on a monopoly company, you can imagine what will happen and I’m not sure if even the regulatory framework would permit this,” he added, offering an example.
At the NSE event on Tuesday, October 5, it was also announced that two privately-held companies, tier-three lender Credit Bank and dairy processor Bio Foods, would list on the NSE.