Capital Markets

Total Kenya owner takes home Sh1.3bn dividend in four years

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A Total Kenya petrol station. French firm Total Outre-Mer holds 92.3 per cent of the Kenyan fuel marketer. PHOTO | FILE

Total Outre-Mer, which owns Total Kenya, will have taken home Sh1.3 billion dividend in four years when shareholders pass the proposal to pay 77 cents a share in the annual general meeting coming early next month.

The company holds both ordinary and preference shares, both of which are eligible for dividend. However, the preference shares have no voting rights.

The French-owned firm holds 92.3 per cent of the Kenyan marketer with 72.19 per cent of its shares being redeemable preference shares.

This means that the parent entity earns most of its dividends through the preference shares but the cash flow of the local subsidiary is reviewed annually to assess the capacity to redeem the shares.

“There is an annual review of the cash flow situation and the retained earnings to assess the capacity of the company to redeem the redeemable preference shares,” said Maurice K’Anjejo, Total Kenya corporate affairs manager in response to queries by the Business Daily.

Further the Total Outre-Mer holding company, Total S.A., which is also incorporated in France, has lent money to the Kenyan entity with the outstanding amount at the end of 2015 being about Sh5 billion.

The Kenyan company did not reveal the exact rate at which it borrowed the cash.

Mr K’Anjejo said the redeemable shares are of benefit to the company in terms of the equity capital it brings in and also keeps costs of financing down.

“The redeemable preference shares is beneficial to the company both in terms of a strong shareholders equity and especially in terms of costs,” said Mr K’Anjejo.

Eric Musau, a senior research analyst at Standard Investment Bank, said the preference shares have benefited minority shareholders because they came at a time oil prices were high and the local firm had little cash – so the alternative would have been to borrow expensively.

“The fact that the preference shares rank the same with ordinary shares means that the preference shares don‘t have to come first when it comes to paying dividends as happens in many other cases where preference shares are involved. But of course there is the uncertainty as to when they will be redeemed since the local company needs a lot of cash to redeem them,” said Mr Musau.

As of 2015, the earnings per share (EPS) stood at Sh2.57, showing that the redeemable shares earned a total of Sh1.17 billion.

READ: Total Kenya swings to profit, triples dividend payout

Total Kenya may however find it difficult to redeem the shares because of the costs involved. On the Nairobi Securities Exchange (NSE), where each ordinary share is trading at Sh18.20 Wednesday, the preference shares would be worth nearly Sh8.3 billion.

Some of the redeemable shares have had an issue price higher than that of the market (Sh17.45) in the past one year.

“Authorised redeemable preference shares 123,478,388 shares of Sh31.58 each,” the annual report says. The rest of preference shares, amounting to 330,999,364 shares, were originally priced at Sh15.71 each.

The other factor in the exit is that the Total Outre-Mer – as the majority shareholder in Total Kenya – is in a pole position to determine the terms of redemption given its overwhelming majority.

This implies that the local shareholders being in the minority, are unlikely to influence whether or not the shares can be redeemed.

“The right to redemption of the redeemable preference shares is at the discretion of the company (Total Kenya) hence they have been classified as equity,” says the firm in its latest annual report.

For the year to last December, the company board of directors has asked shareholders to approve the dividend of 77 cents, up from 70 cents paid the previous year.

The approval is expected to be a formality, paving the way for the payment of Sh447.2 million as dividend to Total Outre-Mer, up from Sh406.6 million paid last year. The other shareholders will take a total of only Sh15.18 million.