Kenyan Tea Companies Deploy Bonus Shares Strategy as Global Prices Weigh on Profits

Two of Kenya’s prominent listed tea companies have implemented an unconventional financial strategy by issuing bonus shares to their shareholders despite experiencing significant financial headwinds and declining profitability. Williamson Tea Kenya and Kapchorua Tea have both executed bonus share distributions aimed at rewarding loyal investors, improving share liquidity, and maintaining market presence during a challenging period for the global tea industry.

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Market Performance Defies Conventional Wisdom

In a development that has puzzled market observers and defied traditional financial theory, Williamson Tea Kenya shares actually gained ground following the book closure for its bonus share issue. When trading concluded at the Nairobi Securities Exchange (NSE) on Monday, October 13, 2025, Williamson Tea shares closed at KSh 302.00, representing a modest 0.3% gain. The counter recorded trading activity involving 6,282 shares across 53 separate transactions, generating a gross turnover of KSh 1.9 million.

This price movement is particularly noteworthy when examined in the context of the stock’s recent trading history. Williamson Tea shares had closed at KSh 325.75 on October 9th, compared to KSh 334.50 on Monday, October 6th, 2025. While the stock did experience some volatility during this period, the fact that shares rallied rather than declined following the bonus issue book closure represents an anomaly that warrants closer examination.

According to established financial principles, a bonus share issue should theoretically result in a proportional decline in share price, as the company’s total market capitalization is divided among a larger number of outstanding shares. This is often described using the analogy of “the same cake but more slices”—while individual shareholders receive more shares, the total value of their holdings should remain constant, with each individual share representing a smaller fraction of the company’s equity.

Understanding the Market Dynamics Behind the Price Movement

CFA Dedan Maina, a respected market analyst, provides valuable insight into why Williamson Tea and Kapchorua Tea chose to implement bonus share programs despite their challenging financial circumstances. According to Maina, the bonus issues serve multiple strategic purposes: rewarding shareholders for their continued support, reigniting market activity on dormant counters, and maintaining visibility on the NSE while the companies wait for improvement in the tea export cycle.

The unexpected price appreciation following Williamson Tea’s book closure can be attributed to what Maina describes as “sentiment and liquidity factors” that distorted the expected adjustment. Both Williamson Tea and Kapchorua Tea operate in what market participants characterize as notoriously illiquid markets, with relatively few shares changing hands during typical trading sessions.

The mechanics of the bonus share process created a temporary supply-demand imbalance that drove prices higher. When the bonus share register closed, existing shares became temporarily locked as the company prepared to allot and list the new bonus shares. This effectively removed supply from the market while demand from buyers remained constant or potentially increased due to renewed attention on the counters.

“Given that both Williamson Tea and Kapchorua Tea counters are notoriously illiquid, the closure of the bonus register resulted in very few sellers,” Maina explained. “Post-closure, those shares are temporarily locked until allotment and listing of the new ones. So demand remained but supply evaporated, and that imbalance created the Williamson Tea share price spike.”

This technical explanation highlights the unique dynamics that can affect thinly traded stocks, where relatively small changes in supply or demand can produce outsized price movements that would be impossible in more liquid markets. The phenomenon also demonstrates why market participants must consider microstructure factors alongside fundamental analysis when evaluating small-cap stocks on frontier markets like Kenya.

Williamson Tea: Company Profile and Operations

Williamson Tea Kenya operates as one of Kenya’s established tea producers with a diversified operational footprint spanning multiple tea-growing regions. The company maintains tea farms in Kaimosi, Kapchorua, Tinderet, and Changoi—areas known for producing high-quality tea that meets international standards for export markets.

Beyond its core tea cultivation and processing business, Williamson Tea has diversified into complementary business activities. The company engages in property investment activities, leveraging its extensive land holdings to generate additional revenue streams beyond agricultural production. Additionally, through its subsidiary companies, Williamson Tea operates in the sale and servicing of generators, providing industrial equipment and maintenance services to businesses and organizations across Kenya.

This diversification strategy reflects management’s recognition that reliance solely on tea production exposes the company to significant commodity price volatility and climate risks. By developing property and equipment service operations, Williamson Tea has created more stable revenue sources that can help buffer the cyclical nature of agricultural commodity markets.

The company’s tea estates benefit from Kenya’s reputation as one of the world’s leading tea producers. Kenya ranks as the world’s third-largest tea producer after China and India, and is the largest exporter of black tea globally. The country’s high-altitude growing regions, favorable climate, and well-established cultivation practices produce tea that is prized in international markets for its quality and consistency.

Financial Performance Under Pressure

Despite their strategic initiatives and operational diversification, both Williamson Tea and Kapchorua Tea have faced severe financial headwinds that have significantly impacted profitability. Williamson Tea reported a substantial net loss of KSh 166 million for the 2024/25 financial year, a disappointing result that underscores the challenges confronting Kenya’s tea sector.

Kapchorua Tea similarly experienced a significant decline in net earnings, though specific figures were not disclosed in public statements. The subdued financial performance of both companies can be attributed to several interconnected factors that have created a perfect storm of challenges for tea producers.

Depressed Global Tea Prices

The most significant factor affecting profitability has been persistently low global tea prices. The international tea market has experienced prolonged weakness due to oversupply conditions, changing consumer preferences in key markets, and intense competition among producing countries. Global tea auction prices have remained below levels that many producers consider sustainable, squeezing profit margins and making it difficult for companies to generate positive returns on their substantial infrastructure investments.

Tea prices at the Mombasa Tea Auction, which serves as the price discovery mechanism for East African tea and influences global markets, have been particularly challenged. The auction has seen average prices decline from peak levels reached in previous years, with certain grades and qualities experiencing especially sharp deteriorations.

The global oversupply situation reflects both increased production from major producing countries and softer demand growth in traditional tea-consuming markets. Countries like Kenya, India, Sri Lanka, and increasingly African nations like Rwanda and Malawi have all expanded production capacity, while demand growth in mature markets like the United Kingdom and Middle Eastern countries has remained tepid or actually declined.

High Operating Costs

While revenue per kilogram of tea has declined, Williamson Tea and Kapchorua Tea have simultaneously confronted escalating operating costs that have further compressed margins. Labor costs in Kenya’s agricultural sector have increased due to regulatory minimum wage adjustments, collective bargaining agreements, and general inflationary pressures affecting workers’ cost of living.

Energy costs for tea processing, which requires significant electricity and fuel inputs for drying, sorting, and packaging operations, have also risen. Kenya’s electricity tariffs have faced upward pressure from infrastructure investments and currency depreciation effects on imported fuel for thermal generation.

Fertilizer and agricultural input costs represent another significant expense category that has escalated. Global fertilizer prices experienced sharp increases following supply chain disruptions and geopolitical events affecting major producing regions. While prices have moderated from peak levels, they remain substantially higher than historical averages, directly impacting tea producers’ profitability.

Transport and logistics costs for moving tea from inland estates to Mombasa port for export have also increased, reflecting higher fuel prices and road maintenance challenges. These costs are particularly impactful for tea companies, as the product must be moved quickly to maintain freshness and quality.

Currency Headwinds

A particularly challenging factor for Kenyan tea exporters has been the appreciation of the Kenya Shilling against the US Dollar. Tea exports are typically invoiced and settled in US Dollars, meaning that when the shilling strengthens, the local currency value of export earnings declines.

For companies like Williamson Tea and Kapchorua Tea that generate the majority of their revenues from exports while incurring most costs in Kenya Shillings, this currency dynamic creates a significant profitability squeeze. A stronger shilling makes Kenyan tea more expensive for international buyers when converted to their local currencies, potentially reducing demand, while simultaneously reducing the shilling-denominated value of dollar export receipts.

The Central Bank of Kenya’s monetary policy actions, foreign exchange market interventions, and broader macroeconomic factors have all contributed to shilling strength during certain periods. While a strong currency benefits importers and helps control inflation, it creates significant challenges for exporters like tea companies that compete in global commodity markets.

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Dividend Payments Despite Losses: Strategic Considerations

In a move that might initially appear counterintuitive, both Williamson Tea and Kapchorua Tea maintained dividend payments to shareholders despite their difficult financial circumstances. Williamson Tea declared a dividend of KSh 10 per share, while Kapchorua Tea offered KSh 25 per share to its investors.

These dividend payments, combined with the bonus share issues, reflect a deliberate strategic approach by both companies’ boards of directors. Market observers suggest that the strategy aims to use accumulated reserves to reward shareholders and maintain investor goodwill during a period when earnings prospects remain challenged.

The decision to pay dividends from reserves rather than current earnings is not unprecedented in corporate finance, particularly for companies facing temporary cyclical headwinds rather than permanent structural decline. By maintaining dividends during difficult periods, companies signal confidence in their long-term prospects and commitment to shareholder returns, which can help maintain share prices and prevent a wholesale exodus of investors.

For long-term shareholders who have supported these companies through multiple business cycles, the continued dividend payments provide tangible returns and help justify holding positions despite challenging financial results. This loyalty is particularly important for relatively illiquid stocks like Williamson Tea and Kapchorua Tea, where significant selling pressure could dramatically depress share prices due to limited buyer liquidity.

The Strategic Logic of Bonus Shares

Beyond the immediate goal of rewarding shareholders, the bonus share issues serve several strategic purposes that align with both companies’ longer-term market positioning objectives.

Improving Share Liquidity

By increasing the number of shares outstanding through bonus issues, companies can potentially improve trading liquidity and reduce per-share prices to levels that attract more retail investor participation. This strategy, sometimes called a “stock split” in other markets, aims to make shares more affordable and accessible to small investors who might be deterred by high per-share prices.

When shares trade at very high prices—as some Kenyan blue-chip stocks do—the minimum investment required to purchase even a single share can exceed the budget of many retail investors. By issuing bonus shares and reducing the per-share price proportionally, companies make it possible for more investors to participate in ownership.

Increased retail investor participation can improve trading liquidity, reduce bid-ask spreads, and potentially support valuations by expanding the investor base. For companies like Williamson Tea and Kapchorua Tea that suffer from limited liquidity, any measures that increase trading activity and market interest represent meaningful improvements.

Maintaining Market Visibility

For listed companies, maintaining visibility and investor awareness is crucial for preserving access to capital markets and supporting valuations. Companies that become inactive or forgotten by market participants can see their shares relegated to the status of “orphan stocks” that trade infrequently at depressed valuations with little analyst coverage or institutional interest.

By executing corporate actions like bonus share issues and maintaining dividend payments, Williamson Tea and Kapchorua Tea keep their names in front of investors, generate media coverage, and demonstrate that management remains actively engaged in value creation strategies. This visibility is particularly important during challenging periods when financial results alone would not generate positive attention.

Signaling Confidence and Commitment

Perhaps most importantly, the decision to issue bonus shares and maintain dividends despite losses sends a powerful signal about management and board confidence in the companies’ long-term prospects. These actions implicitly communicate that current challenges are viewed as temporary cyclical headwinds rather than permanent structural decline.

If management believed that Williamson Tea or Kapchorua Tea faced insurmountable challenges or terminal decline, the rational response would be to conserve cash, eliminate dividends, and potentially consider strategic alternatives like asset sales or liquidation. Instead, by using reserves to reward shareholders, management signals confidence that the tea market cycle will eventually improve and that the companies will return to profitability.

Broader Context: Kenya’s Tea Industry Challenges

The struggles facing Williamson Tea and Kapchorua Tea reflect broader challenges confronting Kenya’s entire tea sector, which plays a crucial role in the national economy as a major source of export earnings, rural employment, and foreign exchange.

Kenya’s tea industry employs hundreds of thousands of workers directly in cultivation, processing, and logistics, with millions more depending indirectly on the sector through related services and support activities. The industry’s health therefore has significant implications for poverty reduction, rural development, and social stability in tea-growing regions.

Several structural challenges face the Kenyan tea sector beyond the cyclical price weakness currently impacting producers. These include aging tea bushes that require replanting, soil degradation in some growing areas, climate change effects on rainfall patterns and temperatures, and increasing competition from other producing countries that offer lower labor costs or more favorable business environments.

The Kenya Tea Development Agency (KTDA), which represents smallholder tea farmers and operates tea factories across the country, has been working with producers and the government to address these challenges through various initiatives. These include promoting best agricultural practices, supporting tea bush replacement programs, advocating for policy changes to improve sector competitiveness, and exploring value addition opportunities to capture more of the tea value chain.

Looking Ahead: Prospects for Recovery

For Williamson Tea, Kapchorua Tea, and the broader Kenyan tea sector, the path back to sustainable profitability will require both cyclical improvement in global tea prices and structural adaptations to enhance competitiveness and resilience.

On the cyclical front, there are some reasons for optimism that global tea prices may strengthen from current depressed levels. Demand for premium tea varieties, organic tea, and specialty blends continues to grow in developed markets, potentially creating opportunities for Kenyan producers to capture higher margins through quality improvement and branding initiatives.

Additionally, supply-side factors including weather events in major producing countries, policy changes affecting production incentives, and potential capacity rationalization could help rebalance global supply and demand dynamics toward higher prices. However, predicting commodity price movements remains inherently uncertain, and tea producers must plan for continued volatility.

Structurally, Kenyan tea companies need to continue investing in productivity improvements, quality enhancement, and value addition strategies that can support profitability even in challenging price environments. This includes investing in modern processing equipment, improving agricultural practices to increase yields per hectare, reducing post-harvest losses, and exploring direct marketing channels that bypass intermediaries and capture more value.

Conclusion: A Strategy Born of Necessity and Optimism

The bonus share issues and continued dividend payments by Williamson Tea and Kapchorua Tea represent a sophisticated strategy for navigating extremely challenging market conditions. By rewarding loyal shareholders, improving share accessibility, and maintaining market presence, both companies are positioning themselves to benefit when the tea market cycle eventually turns positive.

The fact that Williamson Tea shares actually appreciated following the bonus issue book closure—despite this contradicting conventional financial theory—demonstrates the complex interplay of technical factors, sentiment, and liquidity dynamics that characterize frontier markets like Kenya’s NSE.

For investors in these tea companies, the strategy provides tangible benefits through bonus shares and cash dividends while signaling management confidence in eventual recovery. For the companies themselves, the approach helps maintain investor goodwill and market positioning during a difficult period when financial results alone would paint a discouraging picture.

Whether this strategy ultimately proves successful will depend heavily on factors largely outside management’s control, particularly global tea prices and currency movements. However, by taking proactive measures to engage shareholders and maintain market presence, Williamson Tea and Kapchorua Tea have given themselves the best possible chance of emerging successfully when conditions improve.

As Kenya’s tea sector navigates these challenges, the experiences of these listed companies will provide valuable case studies in how agricultural commodity producers can adapt their capital allocation and investor relations strategies to weather difficult cycles while preserving long-term value creation potential.

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By: Montel Kamau

Serrari Financial Analyst

16th October, 2025