Heed NSE advice on selling State shares in parastatals

NSE chief executive Geoffrey Odundo. FILE PHOTO | NMG

By BUSINESS DAILY
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Summary

• The government should pay heed to the proposal by the Nairobi Securities Exchange (NSE) to have State shares in parastatals and other firms where it has significant ownership sold as a means of raising revenue.
• The argument is compelling.
• The government just needs to sell part of its shares in the companies to fund a substantial part of its budget while still retaining ownership and, in some cases, control.

The government should pay heed to the proposal by the Nairobi Securities Exchange (NSE) to have State shares in parastatals and other firms where it has significant ownership sold as a means of raising revenue.

NSE chief executive Geoffrey Odundo told Parliament that the government has the potential to raise Sh792.6 billion from the sale of stakes in listed firms including Kenya Re, KCB and KenGen besides bringing other parastatals like the Kenya Ports Authority (KPA) to the bourse.

He said the funds can help the Treasury to reduce its reliance on debt in the short term to finance expenditure.

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

Profitable firms like Safaricom and KCB, for instance, offer the government an opportunity to realise big capital gains from stock sale.

The NSE says the government has the potential to raise Sh150 billion by reducing its stake in Safaricom to 25 percent from the current 35 percent.

The government in 2008 raised more than Sh50 billion after selling a 25 percent stake, or 10 billion shares, in Safaricom.

The sale of a 10 percent stake in KCB can raise Sh15 billion while cutting the government stake in KenGen from 70 per cent to 40 per cent can bring Sh12 billion.

A KPA initial public offering (IPO) could raise Sh400 billion through the sale of a 40 percent stake.

Besides generating revenue for the government, such transactions have the potential to benefit the public and the wider economy by diversifying and deepening the capital markets.

The NSE has not had major listings since the Safaricom 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 per cent of the market value of the companies listed at the bourse.

The Capital Markets Authority has previously said that it needs a fresh listing of high-value companies and small and medium enterprises as a way of increasing diversity within the Kenyan market and correct the market imbalance.