Kengen (KEGN) will not pay its shareholders any dividend this year and the regulator, the Capital Markets Authority (CMA), says the company is right to withhold dividend payments. But shareholders who subscribed to the company’s rights issue, which raised Ks8.6 billion, are feeling cheated.
Dividend promise was one of the reasons the rights issue received immense investor interest as it saw more than 90% subscription. In its rights issue prospectus, Kengen told investors it was looking to distribute 50% of its net profit to shareholders in dividends. But the company has changed the tune, saying it would reinvest the profit instead.
In the fiscal year ended June 2015, or FY2015, Kengen distributed Ks0.65 a share in dividend. That was an increase from Ks0.40 a share paid a year earlier. Kengen has paid dividends consistently since it went public in 2006.
CMA has backed Kengen’s dividend withdrawal, saying the company was within its rights to suspend dividends if it didn’t have sufficient cash to distribute to shareholders and retain enough to run its operations.
Profit plunges but revenue increase
Kengen’s dividend drought comes after the company posted a sharp decline in profit for the FY2016. Profit of Ks6.7 billion declined more than 41% from a year earlier. Higher costs of borrowing, rising operating expenses and a lack of tax credit were blamed for the downbeat profit. However, revenue rose 42% to Ks36.4 billion. The company posted EPS (earnings per share) of Ks3.07 for the year.
706 Megawatts power projects
The chart above shows Kengen’s annual revenue to FY2016.
Kengen is working to boost its electricity production capacity by 706 megawatts over the next four years. The power capacity expansion will cost billions of shillings and is one of the reasons they management felt it was prudent to turn off the dividend tap this year. Kengen, the largest power producer in Kenya, boasts a power capacity of 1,623 megawatts. Its electricity sources consist of hydro, wind and geothermal. Kegen sells its electricity to Kenya Power Company (KPLC), the country’s monopoly power distributor.
Kengen stock closed flat at Ks5.85 in the last session that saw more than 2.12 million shares traded.
The government of Kenya directly owns 70% of Kengen stock.
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