Info is from the Rights Issue Information Memorandum of 2012 & the published Annual Reports.
My opinions are Italicized.FACTS:
titus naikuni, the CEO, has ZERO shares in KQ. Sufuri, Nada, Zilch.
alex mbugua, the CFO, has 6,054 shares in KQ worth KES 84,750 (at 14/- each)
The 2 Executive Directors compensation for 2010-11 was KES 66,000,000/-
The Net Asset Value per Share = KES 50
Rights Issue Price = 14/-
Rights Offer Entitlement: 16:5 (That's 3.2 'new' shares to be paid for for each 1 held)
So whereas titus and alex make KES 5.5 MILLION per month between them they have shares worth 85k.
That's a decimal point of a decimal point.
KQ's Net Asset Value as of 31st March 2011 (Last Audited Accounts) was KES 23,090,000,000 which divided by 461,615,484 shares = KES 50/- (NAV/Share)
The Board of Directors (excluding 'corporate directors' viz Treasury/Govt of Kenya & KLM) have less than 25,000 shares. The largest chunk is 10,090 held by the chairman.
The BoD got benefits & fees of KES 12 Million in 2010-11 (12 months)
So the BoD which owns a piddling (less than) 25,000 shares worth (at 14/-) max market value value of 350,000/- ... decided to sell Rights at 14/- at a ratio of 16:5 (3.2:1).
Therefore a shareholder who is UNABLE to exercise the Rights will be diluted to 24% of the original value.
Current 461,615,484 shares = NAV of KES 23,090,000,000/-
New Shares 1,477,169,549 = Net Proceeds 20,109,959,011/-
So are the existing shareholder getting a stick up their, erm, evacuation orifice? YESDoes the BoD care? NO
The directors AND their families enjoy (almost) free flights wherever KQ flies. Not economy but First Class and Business Class.
Unlike other CEOS like;
Pradeep Paunrana of Athi River Mining (30%+ shareholding)Bharat Thakrar of ScanGroup (20% shareholding)James Mwangi of Equity Bank (5% shareholding)Jacob Segman of KenolKobil (Options for 5%+ shareholding)
The share prices for the firms in which the CEOs have a stake have done much better than KQ. Each of them trades at more than the Net Asset Value per Share especially Equity Bank & ScanGroup. They have done deal to expand their firms' footprint without destroying the underlying Shareholder Value.Now the CEO of KQ has ... ZERO shares = 0% shareholding. Annual compensation unknown but at least KES 33,000,000/- (KES 66,000,000/- between him & the FD)
KQ NAV/Share = 50/-
Current market price = 14.95
Rights (New Shares) sold at 14/-
Instead of sweating the current assets, KQ's BoD & Management are raising more Capital by selling shares in KQ to many including 'non-shareholders' at a HUGE discount. So IFC, Citibank, etc will buy shares at 14/- whose NAV/Share is much higher.
Would the 4 'owner-CEOs' do the same? I doubt!
To add insult to injury...The Lead Transaction Brokers (Standard Investment Bank) are going to 'process' [which means stamping a form] on behalf of the Govt of Kenya and 'earn' KES 70,000,000 or more!
From Business Daily Africa of 25th April 2012
http://www.businessdailyafrica.com/Brokers+protest+over+Sh70m+KQ+rights+contract/-/539552/1393156/-/tnhkfyz/-/index.htmlStockbrokers have protested over the award of a Sh70 million deal to buy Kenya Airways (KQ) rights shares on behalf of the Treasury to a single investment bank, arguing that the contract should have been tendered through competitive bidding.The Kenya Association of Stockbrokers and Investment Banks (Kasib) has written to the investment secretary Esther Koimett, complaining that the picking of an intermediary to buy the national carrier’s rights on behalf of the Treasury was shrouded in secrecy.The Treasury owns 23 per cent of KQ shares, and the uptake of its full rights is expected to cost Sh70 million in brokerage commissions.“We are unaware of any competitive tender process undertaken to procure the services of the submission of the provisional allotment letter (PAL) for the Kenya Airways rights issue on behalf government in accordance with the Public Procurement Act,” said the Kasib letter, which did not, however, name the implied investment bank.“In the absence of an open tender, the provisional allotment letter should be divided and allocated equally to all the licensed stockbrokers that have been appointed by the issuers,” added the letter.The BoD added even more salt to the wound by paying CASH to the 'vendors' & plan to pay the Stockbrokers in cash instead of Shares. After all if the stockbrokers are so confident then why not accept shares? Of course, the stockbrokers take the lead from KQ's CEO who has ZERO shares!
KQ's alex praised KQ's Finance Team (including Jane Kioi) for 'closing' the deal with IFC. So will a stockbroker submit IFC's application when it is KQ's 'team' [paid by KQ] who brought IFC to the table?
Will KLM's [who is a corporate director] application be handled like GoK's application i.e. commission paid to a broker who 'stamps' the PAL form?
Financing of 'New Shares'Many Kenyan banks will offer 50% Loan To Value (LTV) for shares. This means if one deposits shares worth KES 1,000,000/- the maximum loan given against that will be 500,000/-.
Therefore a Current Shareholder deposits 100,000 KQ Shares worth (at market price of 14/-) with XYZ bank will get KES 1,400,000/- to apply for KES 1,400,000 worth of KQ New Shares.
Current Shares Held = 100,000
Value of Current Shares = 1,400,000/-
Rights Alloted = 320,000
Rights Price = 14/- each which means one needs 4,480,000/- to exercise them
Loan from Bank = 1,400,000/- (based on 50% LTV)
Maximum Rights exercised = 100,000
"Lost" Rights = 220,000
Therefore, the existing shareholder LOSES the net Shareholder Value after the Rights Issue is over since the Untaken Rights will be alloted to others.
Is the existing (Pre-Rights) Shareholder who cannot exercise his/her full Rights Entitlement getting screwed over? YES and what a screwing...
