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.

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.

Over 18 billion shillings will soon be refunded to investors who will not receive the full amount of Kengen shares they applied for.

These include institutional investors and thousands of applicants who pooled in their savings, sold assets, or took loans from bank, employers, cooperative societies and informal financial groups. (Other Nairumoured would-be investors include a couple of MP’s who sat in a restaurant one night plotting how they would each buy a few million shillings worth of Kengen shares and one of Kenya Airways top 10 shareholders who cashed in most of his high-flying shares to repeat the process afresh with Kengen).

Where will the money go? Will banks call in their money or will some investors choose to repay their loans? With t-bills at about 7%, leaving the money in the bank will not earn enough to repay the loans. Will spurned investors continue to buy Kengen share at the market rate after May 19 whether it’s 10 shillings or 20 shillings per share? A quality share that trades at 12 shillings. is a rare thing in Kenya. Will they buy other similarly priced shares or take the refund and buy matatu’s or real estate? Brokers would love for the money to be used to buy other shares and the stock market could receive a significant boost. Or will they wait for the next IPO, probably in a few months time?