Kenya Re rallies after bonus issue raising capital Sh8 billion

FIS Risk Solutions leader Martin Sarjeant, Kenya Re Managing Director Jadiah Mwaraniah and Deloitte Africa Insurance Sector leader Andrew Waren in Nairobi on October 30, 2018. [File]

Kenya Re-Insurance Corporation (Kenya Re) shares jumped 14 per cent to Sh12.50 yesterday after the firm announced plans to issue bonus shares of three for every one held.

Investors were driven to the counter by the prospect of the additional shares, subject to approval in the annual general meeting (AGM) slated for June 14.

During the AGM, the re-insurer would be seeking investors’ consent to raise the capital four-fold from Sh2 billion to Sh8 billion in a transaction involving reallocating retained earnings to capital.

Cash dividends

In issuing the additional stocks, the insurer – largely owned by the Government would be creating more shares and paying for them from its own reserves.

By December 31, Kenya Re had Sh21.8 billion in retained earnings, most of which was held in assets including property – which are not readily sharable to investors in cash making a case for the issuance of the new shares.

The Government, for instance, owns some 420 million shares representing a 60 per cent stake.

Issuance of the additional shares will increase the total to 1.68 billion shares but does not change the stake of 60 per cent in the firm, a factor that could lead to some devaluation.

Bonus shares are granted as a reward to investors, often in addition to cash dividends as is the case for Kenya Re, but could be given alone.

Investors can choose to sell the additional shares for value but the individual stake will be diluted even if they retained the numbers currently held.

Analysts projected the share price would rally before the books closure, a day after the AGM before the significant revaluation after the introduction of the new shares at the bourse.

Standard Investment Bank attributed the rally to the three for one bonus issue which will be distributed to shareholders next month subject to shareholder approval.

It is the second time that the company has issued a bonus share after the previous issue in 2011, in another kind m of reward rather than giving cash.