Kenyan investors will have access to the ongoing Dangote Petroleum shares sale for as little as Sh490 through the Nairobi Securities Exchange (NSE) under a new vehicle that awaits regulatory approval.
Investors will also be able to buy shares valued at Sh49 a piece via global depository receipts (GDRs)-instruments that enable them to hold shares in foreign companies without directly trading on offshore markets or needing to open foreign brokerage accounts.
Investment bank Renaissance Capital will issue Kenyan investors with the GDRs, which will represent the underlying Dangote shares being listed on the Nigerian Stock Exchange (NGX).
Stanbic Bank will serve as the custodian in the deal, directly purchasing the Dangote shares, which will then be packaged as GDRs for local investors who will be able to purchase and sell the receipts on the NSE.
Without the GDR, ordinary Kenyan investors were struggling to buy shares in Africa’s largest IPO because it was not a locally approved issue, and alternatives were costly.
Presently, Kenyan investors can only buy Dangote shares through local stockbrokers with partnerships with brokerages in Nigeria and are required to meet a higher minimum subscription of up to Sh259,5200 ($2000).
Proponents of the GDR expect to get regulatory approval in early October with a goal of opening the share offer between October 5 and October 13, matching the close of the Dangote IPO in Nigeria.
Renaissance Capital says the Kenya offer will match the IPO structure in Nigeria that allows investors to buy a minimum of 10 shares in the refinery for just under Sh500.
“We would like everybody to participate in the IPO, which means using the issued information memorandum which allows for the purchase of a minimum of 10 shares,” said Stanley Kariuki, chief executive officer of Renaissance Capital Kenya.
GDRs work like derivatives by mirroring the change in price of the underlying asset. In this case, the price movement of the NSE-listed instrument will match that of Dangote shares as traded on the NGX in Lagos.
The sponsoring broker and custodian bank will receive dividends accruing from purchased shares and distribute them to GDR holders in the same way as unit trust schemes distribute gains to unit holders.
Investors in GDRs may, however, face higher administrative fees relative to buying share at the NSE and potential liquidity risks in the event supply and demand fails to match.
Upon approval of the transaction by the CMA and the NSE, Dangote will deposit shares with the Nigerian custodian bank (Stanbic Bank), after which the lender will confirm the deposit with its Kenyan peer.
Stanbic Bank Kenya will subsequently issue GDRs, which are derivatives of the Dangote shares in its custody.
After being listed on the NSE, the depository units will be settled in Kenyan shillings through the ordinary Central Depository and Settlement System (CDSC), which supports the trading of other listed shares.
The sponsoring broker says GDRs have been chosen as the most efficient vehicle to deliver the Dangote shares to the public, as the cross-listing of the company remains out of the cards until a future date.
“With GDRs, you get transparency on costs, pricing and trading. Our main aim is to make sure that before and after the IPO, investors will be able to have visibility. The second factor informing our choice for the deposit receipts is that all people can participate in the offer, irrespective of the investment class,” added Mr Kariuki.
Businessman Aliko Dangote, who will deploy proceeds from the IPO to fund expansion of his Lagos refinery, says he expects to subsequently cross-list the company’s shares on the Nairobi bourse as he further mulls a local listing of the Lamu East African refinery whose groundbreaking is set for today.
“Our job is to deepen African capital markets, whatever it takes to have this shared prosperity. Cross-listing and secondary listing is something we will look at doing as we go along,” Mr Dangote said.
A cross-listing differs from the floating of the GDRs in that Dangote refinery shares would physically be listed on the Nairobi bourse in the case of a cross-listing, allowing investors access to the broad pool of the company’s shares.
Dangote is selling 4.1 billion shares, representing a three percent stake in the Lagos-based Dangote Petroleum Refinery and Petrochemicals Freezone Enterprise at a cost of Sh49.25, about 38 US cents or 525 Naira each.
The Sh202 billion proceeds from the IPO will be applied to scaling the firm’s processing facility/oil refinery, doubling its capacity from the current 700,000 barrels per day to 1.4 million barrels per day.
Kenyans have warmed up to the IPO partly from the billionaire businessman choosing Lamu as the site for his next refinery project.
Dangote, Africa’s richest man, has marketed the offer of a roughly 3 percent stake as a “people’s IPO,” saying it is about giving ordinary Nigerians the opportunity to participate in the success of the plant.
The refinery has benefited from increased demand for its products as a result of supply disruptions linked to the Iran war that helped it to sell jet fuel to Western European countries.
