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Daily Nation : February 5th 2014
34 | BUSINESS SEEKING CASH | Company looking to raise Sh15 billion from rights issue State opts not to inject fresh capital in KenGen’s cash call The government will instead convert what the power generator owes it to equity BY ZEDDY SAMBU email@example.com T he government will not inject fresh capital in KenGen during the planned rights issue, Energy Cabinet Secretary Davis Chirchir has said. Instead, the state, which holds a 70 per cent stake in the Nairobi Securities Exchange (NSE)-listed firm, will convert part of a debt that KenGen owes the government into equity. At the moment the electricity generator owes the government a total of Sh27 billion. “We will propose to the Cabinet to allow government to convert its debt to equity,” Mr Chirchir said in an interview. Come in before borrowing At an annual general meeting held in December, shareholders approved a proposal to raise Sh15 billion through a rights issue and an additional Sh15 billion through debt. To keep a hold of its 70 per cent stake, the government needs to inject about Sh11 billion. The rights issue is planned to be concluded before June. “The equity we are looking to raise needs to come in before we borrow. We could also invite a strategic investor,” said KenGen managing director, Mr Albert Mugo. The money will be used to fast-rack its multibillion shilling projects in power production. A consortium led by Barclays, Dyer and Blair Investment Bank, KPMG and law firm Hamilton Harrison & Mathews — currently arranging a Sh430 billion ($5 billion) through bonds and loans — will shepherd the cash call. Among the projects lined up are two coal plants at Lamu and Kitui’s Mui Basin area, the grand 280MW geothermal project and some 100MW FILE | NATION Olkaria geothermal plant will be among the beneficiaries of the extra capital. of wind power near the border of Meru and Isiolo counties. Overall, the power firm seeks to generate an extra 700 units of power within three years with the Olkaria geothermal plant set to be completed by the second quarter of 2014. Current peak power demand is 1,800MW against KenGen’s installed capacity of 1,250MW with additional energy obtained from the costlier diesel-powered generators, which currently account for a quarter of the electricity production market. Under an ambitious programme, the government seeks to add 5,000 megawatts of mainly geothermal, coal and Liquefied Natural Gas energy to the national grid to cut use of the Date. KenGen’s 1400MW Olkaria I and IV plants will be commissioned in March under a phased programme to be scaled up to 280MW later in July. Demand: Current national peak power demand stands at 1,800MW against KenGen’s installed capacity of 1 250MW. Current output Total power capacity will shoot up three times to 5,400MW in the next five years and lead to a 40 per cent reduction in the cost of power. KenGen says it will produce half of these output costly diesel engines. “We plan to double the installed capacity and aim for a 40 per cent RATIONALE Why the rights issue is crucial reduction in the cost of power within three years,” said Mr Chirchir At US5 cents per kilowatt hour, hydro-generation is the cheapest source of power closely followed by geothermal (US7 cents/kwh) which compared to thermal costs, is five times expensive at US36 cents per unit of power. KenGen’s stock has declined by 26 per cent since the beginning of the year to trade at Sh12.60 apiece at yesterday’s trading from last December’s high of Sh17. Analysts are cautious about performance in the short-term. “The search for additional capital may have a positive impact on the share price which has been declining. The share has now picked momentum with the news of additional capital and change of management,” said Ms Agnes Achieng’, research analyst at Sterling Capital. DAILY NATION Wednesday February 5, 2014 STARTING ON BAD FOOTING Chinese firm Lenovo’s share plummets at stock market after Motorola buy-out P.36 Push for measures to cut cost of building BY NATION REPORTER The government has been asked to put in place measures to address the scarcity of affordable housing in Kenya as it prepares the 2014/ 2015 budget Speaking during a public pre- budget hearing hosted by the Institute of Economic Affairs in Nairobi, stakeholders asked the authorities to introduce legislative changes to spur domestic savings and to cut building costs. “Housing materials are expensive. We need to address the high costs of such products as cement for Kenyans to gain access to cheaper housing,” said IEA chief executive, Mr Kwame Owino. Kenya Property Developers Association chief executive, Ms Robyn Emerson, asked the Treasury to be clear on vatable goods 2014/15 The financial year whose prebudget preparations are on the way. and services in the industry. Despite reforms in the Value Added Tax (VAT) law last year, she said, there remains a lot of ambiguity in the industry. Further, she said, property buy- ers are paying more as developers offset the costs associated with the slow pace of land reforms. Ms Emerson asked the government to boost allocations made to the Ministry of Lands, Housing and Urban Development as well as the Lands Commission in order to address these issues. “Developers are interacting with a ministry that is not able to carry out its functions optimally,” said Ms Emerson. Zimele Asset Managers, on the other hand, noted that reforms need to be effected to make it easier for Kenyans to save to build homes. Nigerian bank targets Kenyan oil and gas sectors BY NATION CORRESPONDENT Guaranty Trust Bank has formally launched its banking operations in the country, after acquiring a controlling stake in Fina Bank last year. The West African-based financial insti- DIANA NGILA | NATION GT Bank’s Group managing director Segun Agbaje (left), its East Africa managing director Kunle Sonola (centre) and GT Bank Kenya director Hanish Chandaria yesterday. tution seeks to leverage on its vast global experience to penetrate the local banking industry while targeting the nascent oil and gas sectors. “In five years, we should be next to the six top tier banks in the country and break into the oil and gas sector,” said the bank’s group chief executive officer,” Mr Segun Agbaje at a press conference yesterday. He said the first step will be to increase branch network as the ones formally owned by Fina Bank are too few to realise the projected growth. The Nigerian lender last year reached an agreement to acquire a 70 per cent stake in the then privately-owned Fina Bank Limited at Sh8.6 billion. Before the deal, Fina Bank had total as- sets of $338 million with 38 branches across Kenya, Rwanda and Uganda. GT Bank intends to leverage on this network to reach the wider East Africa market. “We want to build more branches to achieve a balanced cost to income ratio and strengthen our balance sheet,” said Mr Agbaje adding that they will be injecting Sh2.5 billion into the venture.
February 4th 2014
February 6th 2014