S Africa firm foregoes dividend to recapitalise in Kenyan arm

Money Markets

President Uhuru Kenyatta (left) shares a joke with his host President Goodluck Jonathan of Nigeria at State House Abuja after addressing the media. Photo/PSCU 

 

By CHARLES MWANIKI

In Summary

• Liberty Holdings Limited will receive an additional 16.57 million shares in its Kenyan arm which is seeking to plough back into its operations Sh500 million that would have gone out as dividend.
• Shareholders who opt for cash will receive Sh1 per share for the year ended December 31, 2013.

Liberty Holdings Kenya Limited (LHKL) is assured of recapitalising at least Sh264 million from dividend after its majority shareholder said it would take up more shares instead of cash.

 

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South Africa-based Liberty Holdings Limited (LHL) will receive an additional 16.57 million shares in its Kenyan arm which is seeking to plough back into its operations Sh500 million that would have gone out as dividend.

The treatment where shares are given instead of cash to settle payout to shareholders is called a scrip dividend in jargon. Those who opt for cash will receive Sh1 per share for the year ended December 31, 2013.

LHL holds 292.76 million shares in Liberty Kenya, representing 56.8 per cent of the stock. LHL will entrench its majority shareholder status if other investors opt for cash dividend.

No take-over

“In the event that LHL elects to receive scrip and the remaining shareholders cash, LHL will increase its shareholding by up to two per cent,” said LHL in a statement.

LHL said it would not pursue a takeover of Liberty Kenya even if the equity changes increase its shareholding because it wants to keep the company listed at the NSE.

Scrip dividends are often a cash-retention strategy and reflect a desire by major shareholders to raise their stake in a company.

The issuance of the extra shares increases the company’s borrowing capacity by reducing its gearing ratio.

Although shareholders do not meet the cost of acquiring the new shares, they have to meet withholding taxes related to the transfer.

In Kenya the withholding tax on dividends is five per cent for residents and 10 per cent for foreigners.

Liberty said the move offered flexibility to shareholders who stand to profit from significant capital gains on the scrip price of Sh15.90 per share.

The security was trading at Sh18 per share on Monday, giving investors a 13.2 per cent discount.

Stock undervalued

In a note to investors on Liberty Kenya’s financial performance in April, analysts at Genghis Capital said the stock was undervalued despite the fact it had gained 82 per cent over the past one year.