State-backed pension schemes, including the National Social Security Fund (NSSF), failed in their push to sell Kenya Pipeline Company (KPC) shares to Aliko Dangote at Sh9.50 a piece, with the 46 cents difference having threatened to kill the deal.
Mr Dangote, Africa’s richest man, had threatened to walk away from the transaction if the fund managers acting for the pension schemes insisted on demanding a 5.3 percent premium on the shares’ market price at the Nairobi bourse, say the deal makers familiar with the deal.
In the end, the pension schemes accepted Sh9.04 per share, a small premium on the KPC’s market price of Sh9.02.
Mr Dangote sweetened the deal by forgoing the dividends he would have earned for closing the deal before closure of KPC books, ceding Sh1.4 billion to the eight pension schemes that sold the tycoon 24.7 percent stake for Sh42.5 billion.
KPC declared a dividend of Sh0.32 a share that was to be paid to investors on the firm’s books by November 30.
Mr Dangote offered to factor in the Sh1.4 billion dividend or Sh0.32 on the offer prices, pushing the cost of the deal to Sh9.36.
He snatched the Sh42.5 billion KPC share purchase deal from global oil majors who dragged their feet when presented with the opportunity to acquire the 24.7 percent stake in the newly listed firm.
Kenne Belgrad, the managing director of Rock Investment Bank, which acted as the selling broker, argues the final price of Sh9.36 was a fair valuation of KPC shares, insisting that there was no other premium to be extracted from the deal.
The NSSF, the Public Service Superannuation Fund (PSSF) and the County Pension Fund (CPF) sold part of their stakes in KPC while smaller schemes including Lapfund, Laptrust, Kenya Power Pension Scheme and the Kenya Ports Authority (KPA) Pension Scheme made full exits.
The Unclaimed Financial Assets Authority (UFAA) and Kenya Re Insurance Corporation did not sell any shares.
The broker says they engaged with fund managers acting on behalf of the holders and not the entities.
UFAA and Kenya Re have no external fund managers, explaining why they were left out of the transaction.
‘We began initial discussions with Dangote with an asking price of Sh10 and then brought it down to Sh9.50. Even after four rounds of negotiations, he (Dangote) did not accept that price,’ Mr Belgrade told the Business Daily in an interview.
He dismissed claims that the pension schemes lost money in the deal, arguing that the transaction costs were capped at around one percent of the transaction.
The State-backed agencies, the NSSF, the PSSF, CPF and UFAA, had a combined stake of 38.35 percent.
Others were pension funds in parastatals such as Kenya Power, KPC and Kenya Ports Authority (KPA).
Their combined stake has been cut to less than 15 percent, altering the ownership of KPC, less than eight months since its listing on the Nairobi Securities Exchange (NSE).
‘At Sh9.36, you have a four percent return for the holding period, translating to an annualised return of eight percent, which is above inflation. Even after adjusting for a maximum one percent transaction costs, you still get a return close to the prevailing T-bill rates,’ said Mr Belgrad.
‘The narrative that money was lost is misguided and malicious. Reading from the lens of an investor, chasing the dividend earlier was the right thing to do as the cash can be allocated elsewhere instead of waiting to receive the same 32 cents in December with a static share price of Sh9.’
KPC share remained little changed at the NSE when compared to its IPO price of Sh9.
But the share has rallied post the sale of the 24.76 percent stake. It continued rallying on Friday, reaching an all-time high of Sh10.55 at the close of trading on Friday, signalling the Dangote investment as a vote of confidence in KPC.
KPC opened trading at Sh9 a piece on the day the Dangote transaction was executed.
Mr Dangote’s presence at KPC has been likened to strategic Vodacom ownership at Safaricom Plc-with the South African telecom giant viewed as an anchor steward of the Kenyan telco.
With the acquisition, Mr Dangote is now the second-largest shareholder of KPC behind the Kenyan government, which retained a 35 percent stake in the company at the IPO.
The government of Uganda holds a further 20.15 percent through the Uganda National Oil Corporation (UNOC).
No other shareholder holds a significant stake, with the ownership of local pension schemes combined falling below 15 percent.
Mr Dangote is set to nominate a director to the board of KPC, handing him influence and voting rights on the strategic direction of the firm, having attained a significant stake in line with the company’s articles of association.
‘So long as oil marketing companies (OMCs) jointly, or any other shareholder, hold at least 20 percent of the issued share capital of the company, 30 days before the date of each annual general meeting shall be entitled to nominate one director to the board (the institutional director),’ reads part of KPC’s articles of association.