August 23, 2011 / 10:03 AM / 9 years ago

Kenya's British-American IPO undersubscribed

NAIROBI (Reuters) - Investors bought only 60 percent of the shares in an initial public offering (IPO) by Kenyan financial services holding company British-American, with foreign investors largely shunning the stock, a statement from the company showed on Tuesday.

British-American, a holding company for two insurance firms and an asset manager, was seeking 5.85 billion shillings from the sale of 650 million shares to fund expansion in east Africa, including South Sudan.

Analysts said the negligible presence of foreign investors, who accounted for just 0.3 percent of total subscriptions worth 3.52 billion shillings, was due to risk aversion in global markets given the euro zone crisis and a sluggish U.S economy.

“The timing of the IPO came ... when the global markets were risk averse and foreign investors were cutting risky positions internationally,” said George Bodo, a research analyst at ApexAfrica.

Foreign investors are a major driver of the Nairobi Stock Exchange, accounting for about 70 percent of market turnover, but their presence has slackened in recent months, a trend compounded by the depreciating shilling.

Some analysts said the scant support from foreigners was also a show of no confidence in Kenya’s under-penetrated insurance sector, while others said foreign investors were more interested in companies with large capitalisations.

Retail investors bought 70.9 percent of the 390.6 million shares sold, according to the IPO results published by the company on Tuesday. The shares are due to start trading on the Nairobi bourse on September 2.

Analysts said the poor macroeconomic environment in Kenya did not augur well for the company and that the IPO had also suffered due to lingering investor apathy given east Africa’s biggest IPO, that of Safaricom in 2008, has yet to reward retail investors with substantial returns.

Inflation in Kenya hit 15.53 percent in July thanks to rising food and fuel prices, while rising interest rates have dissuaded many investors from seeking funds from banks to invest in shares.

“Banks were also not willing to take shares as collateral post the Safaricom IPO and there was competition for funds due to tight liquidity in the market,” said Gregory Waweru, an analyst at Kestrel Capital.

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