Hits and misses in Kenya Pipeline IPO as State eyes more listing deals

The government’s initial public offering (IPO) of Kenya Pipeline Company (KPC) has breathed some life into Kenya’s equity market, with the share sale setting the stage for a new wave of State-backed listings at the Nairobi Securities Exchange (NSE).

The IPO marked a milestone for Kenya’s capital markets as the largest share sale since the landmark listing of Safaricom in 2008.

The transaction has given the NSE a fresh momentum, which has gone for nearly two decades without a major State-backed listing and has also experienced multi-year listing droughts.

The IPO stood out for introducing new features that could reshape how shares are traded at the Nairobi bourse. It was the country’s first fully electronic IPO, with applications submitted digitally, eliminating the paperwork and long queues that characterised earlier offers.

The IPO also relied heavily on mobile-based investment platforms such as Ziidi to expand access for retail investors by allowing them to open  Central Depository and Settlement  (CDS) accounts and apply for shares directly from their phones.

The Sh106 billion raised was also historic and more than double the Sh50 billion raised during the Safaricom IPO.

However, the IPO also exposed major challenges that Kenya’s capital markets face. While the offer drew strong demand from institutional investors, retail participation remained muted, accounting for just 2.56 per cent of the total subscription.

This was despite efforts to attract small investors through digital investment platforms. The offer attracted 70,000 retail investors, a paltry number compared to Safaricom’s 800,000, perhaps put off by the negative reviews by the IPO’s critics.

The offer also stirred debate among analysts over valuation and highlighted the continued dominance of pension funds and other large investors in major equity transactions.

National Treasury Cabinet Secretary John Mbadi said the IPO gives the government fresh confidence to tap into capital markets for funding and that it could pave the way for more state-owned firms to list on the Nairobi Securities Exchange

“The finalisation of the Kenya Pipeline Corporation IPO is a significant milestone that transcends a single transaction or just being a key statistic at the NSE,” said Mbadi, further noting the impact that the share sale will have on the market and also highlighted that it is the first to be undertaken under the new Privatisation Act 2025.

“There is an intrinsic link between economic development and the capital markets development. The capital markets are the most strategic tools that support economic growth through the provision of capital, encouraging investments, and improving market systems.”

The IPO also stood out in its bid to attract retail investors, leaning on digital investment platforms to widen retail participation in the share sale.

The recently launched Ziidi Trader emerged as a key channel for small investors during the IPO. The platform, operated by Safaricom, allowed investors to open CDS accounts and apply for shares directly from their mobile phones, lowering the barriers that traditionally limit participation in IPOs.  The team mobilising investors said the use of the mobile-based investment platform helped bring in first-time investors to the bourse.

Kenne Belgrad of Faida Investment Bank, the lead transaction advisor, noted that “Ziidi saw retail investors overwhelmingly participating in this issue and that is why we were able to close with a sizeable number of retailers,” he said, further noting that the platform helped “us from a position of x to double x in a few days through Ziidi”.

The issue fell short in terms of attracting retail investors, whose subscription stood at just 2.56 per cent. 

This comes as reports show transaction advisors bagged over Sh1 billion bonus after hitting the IPO target. The lead transaction advisor Faida, is entitled to one per cent of the sale proceeds, with the offer having raised Sh112 billion against a target of Sh106 billion - a 105 per cent subscription rate. Instead, it relied heavily on institutional investors.

Institutional investors

Local institutional investors’ subscription reached 41 per cent against the 20 per cent that had been reserved for them at the start of the offer.

Huge interest by institutional investors had been despite some reviews at the start of the IPO, when some analysts had deemed the share as overpriced, with a cross section of them putting the real value of the share at between Sh3.70 and Sh7.

This was against the Sh9 IPO price. According to Belgrad, the oversubscription by institutional investors demonstrated how solid the KPC stock will be.

“When we talk about professional investors, these are institutional investors – they have oversubscribed this issue three times. When you deal with people who understand valuation, they will tell you this is a buy,” he said.

“If you take a long-term view, which is what institutional investors stand for, you realise that we have 645 local institutional investors who have subscribed to this issue. Let no one focus on two or three pension funds (which gave negative reviews), as this is not the case. They have definitely endorsed that valuation.”

Mbadi said the government would be coming back to the market to raise more funds. He explained that Treasury was eyeing Sh600 billion as seed capital for the National Infrastructure Fund (NIF) 

“We have started on a strong footing. Our aim is to raise Sh600 billion as seed capital to start off the NIF. But we will not wait for that to start the Fund. There are countries that  started with much less than that and today have the largest such funds,” he said.

Treasury would put the Sh350 billion that it expects to raise from the KPC and Safaricom transactions as seed capital for the fund. The government expects to raise Sh245 billion from the sale of a 15 per cent stake to Vodacom.

“We can start with the Sh350 billion that we will raise from the two transactions.”

“But privatising or divesting from State-owned enterprises will not stop. The focus of this government is to move away from doing business and allow the private sector to do business… any company out there that we feel is mature enough, we will optimise that asset…. If there is something to sell, we will sell.

We will divest so that we limit the government, we limit the government involvement in business in this country and at the same time convert those assets into more productive assets,” he said.

“This liquidity we have in the market… the institutional investors who have invested in KPC. It is a clear demonstration that these people have money and they are looking for opportunities. They have been relying on government paper to invest… we need to create opportunities for institutional investors where they can put their liquid capital.”