Tanzania has relegated Kenyan investors to scramble for leftovers not taken by its residents when 59 million shares in Tanzania Breweries Limited (TBL) come up for sale next month.
The shares on sale represent the 20 per cent stake that was held by Kenya’s East African Breweries Limited in the company under an arrangement entered into by SABMiller and Diageo, the two firms’ parent companies respectively.
“Allotment will be on pro-rata basis. Tanzanian applicants will have first priority over other members of East Africa,” said a brief on the share sale released by Renaissance Capital.
East Africa Breweries is ceding the stake as part of the settlement for its majority control of Serengeti Breweries, effectively bringing to an end its distribution arrangements with TBL in Kenya and Tanzania Breweries in the two markets.
The action, similar to Rwanda’s stance on the Bank of Kigali and Blalirwa IPO, has raised eyebrows in investment circles because they appear to run against the spirit of the East African Community that has seen Kenya and Uganda ascribe resident status to investors from other EAC partner states during share offers.
The share issue will raise at least Sh6 billion for East African Breweries, going by projections from Renaissance Capital which said it had been briefed by a stockbroker handling the transaction.
The report said the shares would be sold at a premium of between 10 and 15 per cent above the Sh102 per share closing price on July 1, suggesting a top value of Sh6.9 billion.
This will be the fourth that Kenyan investors will be given a back-seat after they were completely locked out of Tanzania’s national carrier, Precision Air, IPO three months later.
The decision to favour locals over regional investors means that the two countries are still lagging in implementing what was envisaged by the East African Member States Securities Regulatory Authorities (EASRA), the regional capital markets regulator.
Proposals to tighten integration included the harmonisation of capital market policies, regional legal frameworks and the promotion of cross border listings and trading.
Kenya has already implemented provisions requiring all East Africans to be accorded domestic investor status during share issues.
Gerishon Ikiara, an international economics lecturer at the University of Nairobi, said the preferential treatment arose from fears by smaller economies of being swallowed up by the dominant economies.
“This is a knee-jerk reaction especially from politicians who do not go at the same pace as business people,” said Dr Ikiara.
The hangover from the first East Africa Community where Tanzania felt that it did not get a fair deal on the distribution of assets still lingers a generation down the line.
Dr Ikiara said that the situation is not exclusive to East Africa with the United Kingdom, for example, choosing not to adopt the euro and the Norwegian public voting against joining the European Union in a referendum.
Analysts also said that given the patriotism that alcoholic drinks, especially beer, stir, it would be strategic to sell shares in TBL to Tanzanians over other nationals.
Developing the local stock market and capital creation within the domestic market are other factors that make the choice to first sell TBL shares to Tanzanian locals prudent, said Robert Munuku, a research analyst at Drummond Investment Bank.
The sale would be a boost to the DSE which so far has 16 listed companies. Five Kenyan companies EABL, Nation Media Group, Jubilee Holdings, Kenya Airways and KCB are cross-listed there.
The DSE’s profile is also rising with the exchange emerging top in the 2011 Best Sustainable Stock Exchange category in the World Finance Exchange and Brokers Awards.
Eric Musau, a research analyst at Standard Investment Bank, said that Tanzania has more than enough appetite for the shares which are likely to attract large investors such as pension funds.
The move may also pay off for SABMiller which chose not to buy the stake directly from EABL said Johnson Nderi, a research analyst at Suntra Investment Bank. Buying the shares from the market, he said, was far much easier than negotiating with a principal shareholder.
A report by Renaissance Capital said that the majority marketshare, loosened regulation and strong profits justify the premium on the Sh102 price. “TBL is as profitable as KBL (which makes most of the profit for EABL) and it has a dominant position in a market with much less regulatory risk than Kenya,” said the Renaissance Capital’s report on TBL.
TBL has a 85 per cent marketshare and profits for the 2011 financial year grew by 31 per cent to Sh6.88 billion from 2010’s Sh5.23 billion.
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