Total Kenya owner takes home Sh1.3bn dividend in four years

Money Markets

A Total Kenya petrol station. French firm Total Outre-Mer holds 92.3 per cent of the Kenyan fuel marketer. PHOTO | FILE 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• French firm Total Outre-Mer holds 92.3 per cent of Total Kenya with 72.19 per cent of its shares being redeemable preference shares.
• The firm earns most of its dividends through the preference shares but the cash flow of the local subsidiary is reviewed annually to assess the capacity to redeem the shares.

Total Outre-Mer, which owns Total Kenya, will have taken home Sh1.3 billion dividend in four years when shareholders pass the proposal to pay 77 cents a share in the annual general meeting coming early next month.

The company holds both ordinary and preference shares, both of which are eligible for dividend. However, the preference shares have no voting rights.

The French-owned firm holds 92.3 per cent of the Kenyan marketer with 72.19 per cent of its shares being redeemable preference shares.

This means that the parent entity earns most of its dividends through the preference shares but the cash flow of the local subsidiary is reviewed annually to assess the capacity to redeem the shares.

“There is an annual review of the cash flow situation and the retained earnings to assess the capacity of the company to redeem the redeemable preference shares,” said Maurice K’Anjejo, Total Kenya corporate affairs manager in response to queries by the Business Daily.

Further the Total Outre-Mer holding company, Total S.A., which is also incorporated in France, has lent money to the Kenyan entity with the outstanding amount at the end of 2015 being about Sh5 billion.

The Kenyan company did not reveal the exact rate at which it borrowed the cash.

Mr K’Anjejo said the redeemable shares are of benefit to the company in terms of the equity capital it brings in and also keeps costs of financing down.

“The redeemable preference shares is beneficial to the company both in terms of a strong shareholders equity and especially in terms of costs,” said Mr K’Anjejo.

Eric Musau, a senior research analyst at Standard Investment Bank, said the preference shares have benefited minority shareholders because they came at a time oil prices were high and the local firm had little cash – so the alternative would have been to borrow expensively.

“The fact that the preference shares rank the same with ordinary shares means that the preference shares don‘t have to come first when it comes to paying dividends as happens in many other cases where preference shares are involved. But of course there is the uncertainty as to when they will be redeemed since the local company needs a lot of cash to redeem them,” said Mr Musau.

As of 2015, the earnings per share (EPS) stood at Sh2.57, showing that the redeemable shares earned a total of Sh1.17 billion.

READ: Total Kenya swings to profit, triples dividend payout

Total Kenya may however find it difficult to redeem the shares because of the costs involved. On the Nairobi Securities Exchange (NSE), where each ordinary share is trading at Sh18.20 Wednesday, the preference shares would be worth nearly Sh8.3 billion.

Some of the redeemable shares have had an issue price higher than that of the market (Sh17.45) in the past one year