Consider NSE’s advice on selling state shares in parastatals

Geoffrey Odundo, Managing Director of NSE. FILE PHOTO | NMG

By BUSINESS DAILY
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• The government should heed the Nairobi Securities Exchange (NSE) proposal to hold state shares in parastatals and other companies in which it has a large stake sold as a means of generating income.
• The argument is compelling.
• The government just needs to sell part of its stake in companies to fund a substantial portion of its budget while retaining ownership and, in some cases, control.

The government should heed the Nairobi Securities Exchange (NSE) proposal to hold state shares in parastatals and other companies in which it has a large stake sold as a means of generating income.

NSE chief executive Geoffrey Odundo told parliament the government has the potential to raise 792.6 billion shillings through the sale of stakes in publicly traded companies including Kenya Re, KCB and KenGen, in addition to bring other parastatals such as the Kenya Ports Authority (KPA) to the stock exchange.

He said the funds can help the Treasury reduce its reliance on short-term debt to fund spending.

The argument is compelling. The government just needs to sell part of its stake in companies to fund a substantial portion of its budget while retaining ownership and, in some cases, control.

Profitable companies like Safaricom and KCB, for example, offer the government the opportunity to realize significant capital gains through the sale of shares.

The NSE says the government has the potential to raise 150 billion shillings by reducing its stake in Safaricom to 25% from 35% currently.

The government raised more than 50 billion shillings in 2008 after selling a 25% stake, or 10 billion shares, in Safaricom.

The sale of a 10 percent stake in KCB can raise 15 billion shillings while reducing the government’s stake in KenGen from 70 percent to 40 percent can bring in 12 billion shillings.

An initial public offering (IPO) by KPA could raise 400 billion shillings through the sale of a 40% stake.

In addition to generating revenue for the government, these transactions have the potential to benefit the public and the economy as a whole by diversifying and deepening capital markets.

The NSE has not had any major listings since Safaricom’s IPO, a move that has seen investors concentrate most of their wealth in a few counters.

Safaricom, East African Breweries Limited, Equity, KCB Group and Co-operative Bank account for 79.36 percent of the market value of listed companies.

The Capital Markets Authority has previously said it needs a new list of high-value companies and small and medium-sized enterprises in order to increase diversity within the Kenyan market and correct the market imbalance.