Category Archives: Kengen IPO

Kengen the Geothermal Powerhouse

Kenya is the only African country that has successfully tapped the green energy potential of geothermal power and is ranked number eight in the world. Kenya’s 676MW geothermal output trails that of the USA (3,567MW) Philippines, Indonesia, New Zealand, Italy, Mexico, Turkey, and ahead of Iceland, and Japan.

The bulk of this geothermal power comes from the Kenya Electricity Generating Company (Kengen) which supplies 1.6GW (80%) of the country’s 2.3GW electricity output. Of that 533MW is from geothermal energy, primarily from the Olkaria area near Naivasha, where the first wells were dug in 1950 and their deployment and production accelerated after 2007.

Kengen has 294 drilled walls with an 80% success rate, and part of that leap has been due to a Kengen-pioneered “wellhead technology”, which was done in partnership with Green Energy, an Icelandic company. Wellhead technology allows Kengen to tap steam energy within a year or two of sinking a well and recoup their investments faster (it usually costs $6 million to dig a well). In all, Kengen generates 75MW from 7 wellhead stations at Olkaria and one at Eburu.

Kengen’s Olkaria IV geothermal power plant.

In terms of electricity generation, Kengen plans to have supply stay ahead of demand especially considering the long setup time for energy plants (about seven years). With funds raised from shareholders and investors in 2016, they plan to add 1,000 MW to reach 1,745MW by the year 2025.

Kenya has an estimated 10,000 MW of geothermal power potential, and geothermal steam allows high energy demand manufacturing such as steel, cement and glass processing take place. These are currently hampered by the high costs of electricity, but the separation processes of geothermal gases means that such companies can tap steam to use at their factories nearby and this is the strategy behind a planned Kengen industrial park at Olkaria, Naivasha. Already Oserian Flowers buys steam and pipes it to heat their greenhouses in the nearby area.

As at  June 2017, Kengen had a diversified mix of installed energy sources comprising Hydro 818 MW (including Masinga 40 MW , Kamburu 94.2MW, Gitaru 225MW, Kindaruma 72MW, Kiambere 168MW, Turkwel 106MW,  Sondu 60MW,  Sangoro 21.2MW, Tana 20MW), Geothermal 534 MW (Olkaria I 45 MW, Olkaria II 105MW, Olkaria IV 149.8MW, Olkaria I AU 150.5MW), Thermal 253.5 MW (Kipevu I 73.5MW, Kipevu III 120MW, gas turbines 60MW) and wind power 25.5MW (three phases at Ngong Hills).

Kenya has a liberated energy production market, and other private sector players in the geothermal sector who are seeking support under a private-public partnership program include Sosian Power, Quantum Power, and Akiira, as wells as Africa Geothermal and Orpower who are close by Kengen’s fields at Olkaria.

The Kengen setup

Our high expectations about Kengen must ‘fail’ for the good of the country’s future IPO’s and stock exchange.

Politics showed its’ hand when the share allocation was made democratic as possible. As a result institutional and foreign investors were short-changed in the process which was now tilted to favour wananchi. The hunger to own a new company, cheaply available at the stock exchange followed and the flames were fanned by banks, employers and financial institutions who availed easy cheap loan to borrowers to engage in the risky business of share buying.

Meanwhile, large investors set aside millions of dollars and shillings for months leading to the IPO, only to receive a maximum $1,000 worth of shares when the results were announced.

Future IPO’s may not be as popular with wananchi as Kengen was – and the government will need the support of these financial, institutional, and foreign investors to participate in these subscriptions e.g. of Telkom and other state corporations.

Most important is that investors need a reality check – to learn that there is no sure thing about share prices – (even Safaricom). If you buy a share at 11.90 today, to sell it at 60 tomorrow it is only possible if there’s someone who believes that it is worth 100, and so will happily buy it at 60. The same lesson should be applied to banks who engage in such risky lending – and can now see that there are investors who will not buy our shares at 60 or 38 or maybe even 25 shillings.

We all bought Kengen with thoughts of Kenya Airways and Mumias-like appreciation in prices, but probably forgot that these shares were un-loved until only recently, and languished for some years after their IPO.

Kengen IPO refund to investors

I trooped to get my IPO refund today – and it was a bit scary passing some brokerages houses on Kimathi Street which had long lines of people stretching outside the building as they awaited their refunds. But, my stockbroker/bank is about two miles out of town which means the crowd is slightly smaller and I get better, and faster, service.

Every broker has a system for refunds but once I found myself in the right place, I gave in my details and then sat in a cool tent waiting for my number to be called. A waiter tapped everyone on the shoulder offering them a soda to which almost everyone quietly asked “how much?” to which he happily replied “It’s free, one soda each!”.

Despite the speedy service it still took about two hours to get my 0.000033% of the massive IPO refund. Since the volume of applications was unprecedented and the timetable strict, refund cheques were sent from KCB back without being sorted to brokers – who now had to weed out each refund cheque.

good/bad about banks
Generally refunds is easier at the bigger banks who have more space in their halls, more staff on call, and can quickly open new desks and teller windows dedicated to share matters. They are also able to process cheques, but at a fee. My bank offered to cash my cheque for 1,000 shillings (15% of my refund) – but I instead opted to make another long trek to KCB who did it for 200 shillings.

The CMA needs to set some ground rules for future IPO’s including:
– Brokers & institutions must demonstrate they have the capacity (space, competent staff) to handle volumes of new investors. It probably took each working investor an hour to buy Kengen shares and another hour to collect a refund cheque – productive time spent away form the office.
– Have standard fees for bankers cheques, and encashing refund cheques (and also for dividend cheques).
– Review and restrict lending for shares in future.
– Another loophole that needs to be sealed is that an investor can have as many CDS accounts as possible. This means that they can get the maximum IPO allocation (6,600 Kengen shares) several times over.

Banks have greater advantage in terms of offerign financial products. They have a captive audience (stuck in long lines)and are able to sell them other products including mortgage and stockbroking if they chose to. Recently, insurance companies have been asking for financial laws to be changed to enable their products to also be sold at banks.

So where did the money go?
Despite my earlier protestation that any dividend not re-invested is wasted my money is going to go towards day to day expenses, debt repayments and pilsner (I have encountered too many flat Tusker’s of late). This is because the refund money is coming in the middle of the month, when most of us are very broke. Also there’s not much else to buy on the NSE with 7,000 shillings, now that Kengen shares already selling for over 30/= – so it’s abstinence for now, till the next IPO.

Don’t sell Kengen

Official allocation results of Kengen IPO were published today for the shares, which start trading on Wednesday May 17.

Applicants who applied for 500 (will get 500 shares), 1,000 – (812 shares), 2000 – (1,436), 5,000 – (3,309), 10,000 – (6,431) and applicants who applied for more than 10,000 will also receive only 6,431 shares.

Already some lucky investors are planning to cash out at 30/= or 50/= shillings per share within a few weeks of the shares trading.

However, institutional investors, who were short-changed in the allocations, may hold firm and choose to wait out the individual shareholders (burdened by bank and other loans) by holding out to buy at the lowest price, preferably at or below the IPO price of 12/=.

The best performing shares I bought in the last year are Express Kenya and Diamond Trust which have both gained about 78% to date. But they pale in comparison to other shares held for many years such as KCB and Kenya Airways which have only come into their own recently with strong management and direction, and have yielded over 1,000% each, not including dividends.

So it pays to keep the shares over the long term and not to cash out of Kengen this year.

All Kengen

All about the Kenya Electricity Generating Company (KENGEN) IPO through which it will transform to a public company that will be listed on the Nairobi Stock Exchange (NSE).

Opens: Monday March 20
Closes: Wednesday April 12
On offer: 659 million shares (par value 2.5sh) at 11.9 sh per share (minimum lot is 500 shares at 5,950 shillings)

How & Where to buy shares
All share buying now starts with the opening of a CDS account with any stockbroker, and after March 20, you can register and pay for your allocation of shares. In addition, several banks and credit institutions will even finance purchase of Kengen shares.

Over the next month, all their offices will be full of investors opening CDS accounts and placing orders for shares. Customer service for retail investors is marginal at best at most stockbrokers, but it will be even worse during the IPO period as overworked staff rush to beat the deadline.

However, I have a bias towards stockbrokers/investment banks, which enable online account management and trading. These include;

Dyer & Blair
Francis Drummond

Why buy?
Some KBW analysis of Kengen here.

Pro: Kengen is already profitable, still a monopoly, and energy sector shares are hot right now. E.g EA cables, KPLC.

Con: Have a single customer (KPLC), is a capital intensive company that can be affected by drought, will still be 70% government-owned & prone to interference (e.g. KPLC), lop sided IPO that favours employees, and past large IPO’s have taken many years for investors to achieve high returns e. g. KQ and Mumias.

Still, upside is good, but only as part of a balanced portfolio. I recommend an investment of not more than 1/3 of shares in Kengen, and everyday I caution people who are setting aside their entire savings/investments to buy Kengen shares to, in addition, seek value in other companies as well.

In the week since the Kengen IPO was announced, other companies have lost their share values as follows; Express -14.29%, Rea Vipingo -13.82%, Sasini -13.04%, Housing Finance -13.01%, Sameer Africa -12.94%, Diamond Trust -11.73%, National Bank -11.45%, Athi River Mining -10.27%, Uchumi -8.66%, Total -8.28%, Mumias -7.88%, and Kenya Airways -6.91%.

What Else?
Shares of the new Serena will be listed on the NSE staring tomorrow (March 15).