Just Shy of a Takeover: The Rules That Let 24.76% of Kenya Pipeline Change HandsJust Shy of a Takeover: The Rules That Let 24.76% of Kenya Pipeline Change Hands

About 4.5 billion KPC shares, worth roughly KSh 42.5B ($327.12M), moved from public entities to private investors through the Nairobi Securities Exchange's block-trading platform. President William Ruto confirmed the sale in his Mashujaa Day address in Eldoret on 20 October, but no buyer or seller has been named.

This explainer sets out the rules that shaped the deal: what a block trade is, why 25% matters so much, and what a small KPC shareholder can and cannot expect when a stake this size moves.

A trade too big for the ordinary order book

On a normal trading day, NSE shares are bought and sold through an open order book: buyers post bids, sellers post offers, and the prices they agree become the market price everyone sees. A seller trying to offload 4.5 billion shares that way would swamp the screen and probably crash the price before half the shares were gone.

A block trade solves that problem. Buyer and seller agree the size and price privately, through their brokers, and the exchange records the deal as an off-market transaction.

Under the block-trade rules the NSE adopted in February 2023, a block must be worth more than KSh 3B ($23.09M) and cover at least 5% of a company's issued shares, or cover more than 15% if it is smaller. The price can sit within a band of 30% around the one-month average, and the trade does not move the published share price. It counts only towards total market turnover.

For KPC, 5% of its roughly 18.17 billion issued shares is about 909 million shares, worth around KSh 8.58B ($66.05M) at this week's price. This is a room only large institutions can enter. A retail investor holding a few thousand shares cannot join the trade, and the screen they watch does not show it happening.

The 24.99% ceiling and the 25% line

The same 2023 rules cap any single block at 24.99% of a company's issued shares. The figures suggest that ceiling is deliberate: it sits one notch below the threshold in the Capital Markets (Take-overs and Mergers) Regulations, which define "effective control" as the right to exercise not less than 25% of the votes in a company.

Cross that 25% line, alone or with others "acting in concert", and the law presumes you intend a takeover. You must then follow the full takeover procedure, which includes announcing your intention within 24 hours of your board's decision and making an offer to the remaining shareholders. Anyone who already holds between 25% and 50% may add no more than 5% of the company in any one year without triggering that procedure again.

On Mwenendo's arithmetic, the 4.5 billion shares that moved equal 24.76% of KPC. A full 25% would have been about 4.54 billion shares. The gap is roughly 43.32 million shares, worth about KSh 409.18M ($3.15M) at the implied price, which is small change in a KSh 42.5B ($327.12M) deal.

Nothing published so far suggests the deal broke any rule. Reports citing people familiar with the transaction describe a single foreign institution buying from at least eight state agencies, with Rock Investment Bank handling the sale and KCB Capital acting for the buyer. If the shares in fact went to several unrelated buyers, the takeover rules would not come close to applying.

Either way, the structure keeps the deal inside the block-trade lane and outside the takeover lane.

A KPC saver's worked example

Take a Nairobi teacher who bought 10,000 KPC shares in the initial public offering at KSh 9 ($0.07) each, paying KSh 90,000 ($692.73). The block price implied by the reported figures is about KSh 9.44 ($0.07) a share, which values her holding at about KSh 94,440 ($726.91) on paper.

In a block trade she has no part to play. The sellers and the buyer agree terms between themselves, and her shares stay exactly where they are.

In a takeover, her position changes. Once a buyer crosses 25%, the regulations require it to make an offer to the remaining shareholders, so she would get her own chance to sell or to stay. The Capital Markets Authority can waive that duty in writing, but only where an exemption serves "the wider interests of the shareholders and the public", with strategic investments and companies in financial distress among the listed grounds.

That is the difference 0.24 of a percentage point makes: the line between a private deal among institutions and a public offer that reaches every shareholder on the register.

Why the sellers matter as much as the buyer

The sellers were not ordinary investors. When the government sold 65% of KPC early this year, the National Treasury's results showed the offer 105.7% subscribed at KSh 9 a share, with local institutions taking 41% of the shares and East African investors 21.22%, while foreign investors took just 0.02%.

If the shares sold this week were bought at that IPO price, the sellers paid about KSh 40.5B ($311.73M) and received about KSh 42.5B ($327.12M), a gain of roughly KSh 2B ($15.39M), or 4.94%, in about seven months.

That is less than a 91-day Treasury bill paying 8.75% a year would have returned over the same stretch, before counting any dividend. Whether the sellers also keep the proposed dividend depends on the book-closure date.

KPC's board has proposed KSh 0.32 a share, which would be worth about KSh 1.44B ($11.08M) on 4.5 billion shares if shareholders approve it.

Those sums belong, in the end, to pension savers and public bodies. That is why the identity of the sellers, and the price each of them accepted, is a fair public question even when the trade is perfectly lawful.

Kenya has argued over this line before

Kenya's takeover rules have already been tested in court this year. In September, a three-judge High Court bench nullified the sale of the state's 15% stake in Safaricom, describing it as a camouflaged takeover that skipped merger, takeover and competition rules. Vodacom and the Treasury have indicated they will appeal.

Compare that with Nedbank's purchase of NCBA, which went the full distance. Nedbank made an offer to every NCBA shareholder, scaled back the excess when 79.90% of shares were tendered, and is due to settle its roughly 66% holding through a block trade on 3 November, as Mwenendo reported on the NCBA trading halt.

The block trade there is the final step of a takeover, not a substitute for one.

Three questions the KPC disclosures should answer

The rules tell readers where to look next. First, KPC's next shareholder register or annual report should show who now holds the largest stakes. Second, any further purchase that lifts one buyer, or a group acting together, past 25% should trigger a public announcement within 24 hours and an offer to all shareholders, unless the Capital Markets Authority grants a written exemption. Third, the state bodies that sold should be able to say what price they accepted and why.

KPC's governance has drawn scrutiny before: the High Court recently dismissed a union bid to remove the company's chair without hearing its conflict-of-interest claim. A listed company carrying the country's fuel through its pipes is owned in part by the public. Knowing who owns the next quarter of it is the least that ownership should buy.