The Privitisation Commission has approved the offloading by equity stake in 26 state owned entities, some which be sold of through initial public hearings. This is good news.
Privatization often brings into the market new industries, which increases investor’s diversification opportunities, and improves market liquidity.
In case where privatization is by cross-listing of stocks, that is, the floating of a company both in the domestic and international exchanges, such as dual listing planned for National Oil Corporation, it will enlarge the participation of foreign investors, hence capital inflows.
An historical analysis of privatizations in Kenya show it has always represented a boon for capital markets. Most of the IPOs done by state owned agencies, have in fact been oversubscribed IPOs, and had a multiplier effect of attracting a good number of private companies.
The first privitisation through capital markets was in 1988 by Kenya Commercial Bank. It was oversubscribed at 327%.
The euphoria that KCB raised was so much, Total Oil Company, Nation Printers (now Nation media) and Standard Chartered Bank got into the market, with subscription rates of 106%, 113%, and 233% respectively.
In 1992, the privatization of Housing Finance Corporation through an IPO immediately attracted Crown Berger, East African oxygen (BOC), NIC, Firestone, Rea Vipingo and East African Portland Cement to the stock market.
Without doubt, therefore, privatizations through the Nairobi Securities Exchange (NSE) is a catalyst for capital raising and listing by private enterprises. This trend has similarly been observed in several other jurisdictions notably India, China, New Zealand, South Africa and Egypt.
More recently in 2017, the Brazilian government announced its largest privatization package since the 1990s to bolster investment in order to revive the economy.
A total of 57 companies have been earmarked in the package, including the Brazilian Mint which prints the country’s currency and passports, 14 airports, 15 port terminals and energy firm Eletrobras. The Brazilian Government aims to raise 14 billion U.S.D.
Privatization is more likely to result in increased efficiency and improved equity outcomes of state owned entities. Incompetent managers will be able to be routinely routed out, and market dynamic will guide their operations.
Kenya has a well regulated capital markets and privatization will produce optimal outcomes. Furthermore, citizens will have a chance to venture into the market and have an investment opportunity.
The planned privatization is a good policy. Citizens have a right to be wary, but they need to vigilant to ensure the process is done properly. The days ahead are good for the capital markets