Kenya Pipeline IPO Struggles with Tepid Investor Response as Valuation Debate Intensifies

With only two days remaining before the Kenya Pipeline Company initial public offering closes on February 19, 2026, the Kenyan government finds itself in a precarious position, counting on a last-minute surge of retail investors to rescue what was designed to be East Africa’s largest IPO in local currency terms. The Ksh106.3 billion ($825 million) share sale, which puts 11.81 billion shares on the market at Ksh9 each, has struggled to gain traction despite a month-long subscription window and unprecedented efforts to democratize access through mobile technology.

Treasury Cabinet Secretary John Mbadi remains publicly optimistic, drawing parallels to familiar patterns of Kenyan consumer behavior. “You know how Kenyans behave, even when the IEBC is registering voters, they all come at the last minute. Let’s wait for the final week, I am sure we will have enough investors,” Mbadi said, though he stopped short of providing concrete subscription figures that would validate his confidence.

As of last week, market sources indicate that subscriptions stood at approximately 10 percent, translating to roughly Ksh11 billion — a figure that falls dramatically short of the government’s ambitious targets. If the IPO succeeds at reaching minimum thresholds, trading on the Nairobi Securities Exchange will begin on March 9, 2026, marking Kenya’s first major privatization since the landmark Safaricom offering in 2008.

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Valuation Controversy at the Heart of Weak Demand

The Ksh9 share price sits squarely at the center of a growing controversy that threatens to undermine the offering’s success. Independent analysts who have scrutinized KPC’s financials argue that the government’s pricing embeds a substantial premium that may constrain near-term upside for investors entering at the offer price.

Ugandan analysts, led by Old Mutual Investment Group Uganda, have emerged as among the most vocal critics of the pricing strategy. In a detailed initiation note released in late January 2026, Old Mutual valued KPC shares at just Ksh4.61 — nearly half the offer price — warning of limited upside due to what they characterize as an “embedded premium” in the current pricing.

“The current IPO pricing embeds a valuation premium that may constrain near-term upside for public market investors,” the Old Mutual report stated. “We anticipate a post-listing repricing as investor expectations normalize and improved trading liquidity enables clearer price discovery more closely aligned with intrinsic value.”

Old Mutual’s assessment is based on a blended valuation framework combining discounted cash flow analysis and relative market comparables. Their DCF model, using a 16.04% weighted average cost of capital and a 3.0% terminal growth rate, yields a value of Ksh4.26 per share. A second analysis benchmarking KPC against regional utilities including KenGen and Kenya Power, alongside oil and gas operators such as Seplat and Aradel, produces Ksh5.27 per share. Weighting these two methodologies results in the Ksh4.61 fair value estimate, implying a 49% downside to the IPO price.

This skepticism is not limited to Ugandan analysts. Local research houses have reached similar conclusions through independent analysis. NCBA Investment Bank placed fair value at approximately Ksh6.35 per share, arguing that the IPO implies a premium earnings multiple for what is fundamentally a mature, regulated utility. Standard Investment Bank’s pre-offer valuation work estimated KPC’s equity value at around Ksh102 billion, implying roughly Ksh5.61 per share on the post-IPO share base. Other independent analyses have produced fair-value ranges between Ksh3.28 and Ksh5.41.

The government, for its part, set the share price at Ksh9.00 using an earnings-based valuation, specifically an EV/EBITDA multiple of 8.1 times applied to FY2025 EBITDA of Ksh18.6 billion. This methodology implies an equity valuation of approximately Ksh163.6 billion for the entire company based on 18.17 billion shares outstanding — a figure that independent analysts argue significantly overstates intrinsic value.

Strong Fundamentals Obscured by Pricing Concerns

The valuation debate is particularly striking given that KPC’s underlying business fundamentals appear robust on most operational and financial metrics. The company operates Kenya’s main fuel pipelines and storage facilities, transporting petroleum products across 1,342 kilometers of pipeline infrastructure connecting the Port of Mombasa to inland markets including Nairobi, Eldoret, and Kisumu, with extensions serving landlocked neighbors across East Africa.

This strategic infrastructure position gives KPC steady demand and a central role in the region’s energy supply chain. The company holds a dominant 91% market share in Kenya’s petroleum transportation sector, operating what amounts to a natural monopoly with high barriers to entry that protect its competitive position.

On paper, KPC presents impressive financial figures. The company holds assets worth Ksh163 billion and posted a profit of Ksh7.49 billion for the year ended June 30, 2025. Revenue for the same period reached Ksh38.6 billion, up from Ksh30.86 billion in 2023, reflecting rising petroleum demand across the region. Over the past 12 months, KPC paid Ksh10.5 billion in dividends to the Treasury, demonstrating consistent cash generation capabilities.

The company’s EBITDA margins average approximately 45%, typical of infrastructure-like businesses with regulated revenue streams and limited direct competition. Net cash flow from operating activities reached Ksh14.3 billion for FY2025, underscoring solid cash-generating capabilities. Importantly, KPC carries no debt on its balance sheet, having recently cleared a $350 million 10-year borrowing within seven to eight years, significantly strengthening its financial profile.

Perhaps most attractive to income-focused investors, KPC has pledged to distribute 50% of net profits as dividends to shareholders post-listing, subject to financial performance and investment needs. Based on historical profitability, this policy could deliver meaningful dividend yields, though analysts note that even with this payout ratio, the implied dividend yield struggles to compete with double-digit, tax-free government infrastructure bonds currently available in the market.

Mobile Technology Gambit: Ziidi Trader Launch

Recognizing that traditional distribution channels and lengthy onboarding processes have historically suppressed retail participation in Kenyan capital markets, the government structured the offer to favor local participation and deployed innovative technology to widen access. Officials set aside 60% of the shares for Kenyan investors, with 20% allocated to retail investors, 20% to local institutions, and the remainder split among oil marketers and employees. East African and international investors will share the remaining 40%.

The centerpiece of the retail mobilization strategy came with the February 10, 2026 launch of Ziidi Trader, a Safaricom-backed platform integrated directly into the M-Pesa mobile money application. The platform allows Kenya’s 37.9 million M-Pesa users to buy and sell shares on the Nairobi Securities Exchange directly from their mobile phones without requiring a traditional stockbroker or the complex CDS account registration process that has long deterred retail participation.

“Ziidi Trader is a powerful step in democratizing wealth for our customers. For eighteen years, M-Pesa has transformed how Kenyans live, work and do business. Today, in partnership with the NSE, we are extending that impact to how our customers build and grow their wealth,” said Peter Ndegwa, CEO of Safaricom PLC, at the launch event attended by President William Ruto.

The timing of the Ziidi Trader rollout — just nine days before the KPC IPO closes — was clearly strategic. President Ruto explicitly connected the platform to the Pipeline offering, noting that the new system should allow people across the country to participate without traveling to Nairobi. “From today, this is a pathway for my friends, the Mama Mbogas and the boda boda guys, to own a home. There is a pathway for them to access help. And today, they have a pathway to buy shares,” the President said during the launch ceremony.

The Ziidi Trader platform operates under the oversight of the Capital Markets Authority and in partnership with key market institutions including the NSE, the Kenya Association of Stockbrokers and Investment Banks, and the Central Depository and Settlement Corporation. The platform allows purchases of as little as one share, with transaction costs appearing significantly lower than traditional brokerage channels. Analysis suggests a purchase of 100 shares valued at Ksh4,500 attracts total charges of Ksh68.50, representing approximately 1.52% — a marked improvement over traditional brokers who often charge minimum commissions of Ksh100 regardless of trade size.

Despite these innovations, the slow subscription rate suggests that accessibility improvements alone may not overcome fundamental concerns about valuation and expected returns.

Government’s Infrastructure Financing Imperative

The Kenya Pipeline IPO represents far more than a simple privatization transaction. It forms a critical component of President William Ruto’s broader strategy to divest from state companies and generate alternative funding sources for infrastructure development at a time when the government faces severe fiscal constraints.

Kenya’s debt burden has reached concerning levels, with annual debt repayments consuming approximately 40% of government revenues. Limited room to raise taxes and mounting public resistance to additional borrowing have forced the administration to explore innovative financing mechanisms. “The traditional methods of financing our budget — taxation and debt — there is no longer any space,” Finance Minister John Mbadi stated bluntly at the IPO’s launch ceremony in January.

The gross proceeds from the KPC offering, estimated at Ksh106.3 billion assuming full subscription, will accrue entirely to the Government of Kenya rather than to KPC itself, as this is structured as an offer for sale rather than a capital-raising exercise for the company. The Treasury has indicated these funds will be allocated toward financing critical infrastructure projects across roads, irrigation, health, education, security, and energy sectors.

More strategically, the government plans to channel a significant portion through a new National Infrastructure Fund designed to attract further private investment into development projects. Kenya aims to increase power generation from three million to 10 million megawatts, and officials argue that asset sales such as the KPC offering will help close the infrastructure financing gap that cannot be met through taxation or borrowing alone.

This fiscal imperative helps explain the government’s aggressive pricing strategy despite analyst concerns. A lower share price would reduce the proceeds captured by the Treasury, undermining the transaction’s core fiscal objective. However, this creates a fundamental tension: pricing that maximizes government receipts may simultaneously suppress investor demand if the market perceives insufficient value at the offer price.

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Regional Dimension and Uganda’s Strategic Interest

The IPO carries significant regional implications beyond Kenya’s borders. Uganda accounts for more than 30% of KPC’s throughput and revenue, with approximately 2.7 billion liters of fuel transported to Uganda in 2025, expected to rise to 2.9 billion liters in 2026. More than 90% of Uganda’s fuel imports transit through Kenya’s pipeline system, creating a deep interdependence that has taken on policy dimensions.

At a regional event in late 2025, President Ruto indicated that Uganda would be invited to acquire a stake in KPC as part of deeper East African integration. The IPO structure reflects this, with 15% of shares reserved specifically for oil marketing companies operating in Uganda, Rwanda, and the Democratic Republic of Congo, and a further 20% set aside for East African Community citizens generally.

Ugandan petroleum sector stakeholders have expressed cautious interest. “KPC is a monopoly business that has expanded operations to major Kenyan cities. Its partnership with the Uganda National Oil Company promises revenue growth,” said a senior manager at EasyGas Limited in Kampala, though he noted operational challenges including historical output losses and planning issues affecting Jet A-1 deliveries.

Dickens Asiimwe Kata, an oil and gas lawyer at Cristal Advocates in Kampala, characterized the share sale as signaling KPC’s likely expansion into Uganda and Rwanda. “Uganda imports 18 million liters of petrol per month, representing a significant revenue stream for KPC. Its corporate governance standards are fairly impressive,” he noted.

However, Uganda’s own infrastructure ambitions could complicate KPC’s regional growth narrative. The $5 billion East African Crude Oil Pipeline linking Uganda’s oil fields to a Tanzanian port is nearing completion, with production expected to begin in the second half of 2026. More significantly, Uganda expects to build its own refinery by 2029/30. KPC itself acknowledged in its prospectus that “if this materializes, it will pose a significant risk to KPC in terms of its regional expansion strategy.”

This creates an interesting dynamic where Ugandan analysts are among the most skeptical of KPC’s valuation precisely because they understand both the company’s current importance to Uganda’s fuel supply and the structural threats on the horizon as Uganda develops its own petroleum infrastructure.

Regulatory Safeguards and Monopoly Concerns

The government has attempted to address concerns about monopoly behavior and potential price manipulation through a framework of regulatory oversight. Treasury CS Mbadi has repeatedly emphasized that the Energy and Petroleum Regulatory Authority (EPRA) controls tariffs and will continue to protect consumers, even with majority private ownership.

The IPO framework embeds strict governance controls requiring oversight by multiple institutions including the Competition Authority of Kenya, EPRA, and the National Assembly. These safeguards are designed to preserve KPC’s role as a neutral, regulated infrastructure operator while transitioning from a state corporation to a public liability company adopting enhanced corporate governance standards in line with Capital Markets Authority regulations.

Critics, including former Chief Justice Willy Mutunga-era judicial figures, have warned that privatization of strategic public assets could lead to higher fuel prices and rising inequality. However, government officials maintain that the regulated nature of KPC’s operations, combined with the state’s retention of a 35% stake subject to a 24-month lock-in period, will ensure continued alignment with national interests.

Last-Minute Rush or Extended Deadline?

The IPO requires at least 250 applicants and a minimum subscription of 50% of the shares on offer to proceed to listing. If certain allocation categories fall short, regulations allow the company to reallocate shares, starting with local retail investors — providing some flexibility in meeting minimum thresholds even if overall subscription remains below target.

Officials continue to express confidence in a late surge, banking on cultural patterns where Kenyans tend to act at the last moment on major decisions. The government kept the subscription window open for a full month, significantly longer than most past IPOs, specifically to accommodate this anticipated behavior. Investors can still apply through banks, traditional brokers, or the new Ziidi Trader platform until 5pm on February 19, with allocation results scheduled for announcement on March 4.

However, market observers warn that if subscriptions remain weak, the government may face difficult choices: extend the deadline (as happened with previous struggling state offers), adjust the terms to make the offering more attractive, or accept a partial subscription that would reduce the capital raised. Each option carries political and market credibility risks at a time when the Ruto administration is already navigating significant economic headwinds.

James Kamanja, a Nairobi-based market analyst, captured both the opportunity and the challenge: “This IPO is unprecedented in scale for the NSE because the sale of 11.8 billion shares dwarfs previous offers and is expected to significantly deepen the market by attracting hundreds of thousands of new retail investors. For Kenyans, it represents a rare opportunity to invest directly in a strategic, profit-making national monopoly with a visible role in the economy. The promised dividend yield, based on the last payout, could be an attractive income stream for shareholders.”

He added, however, that “the success of this offering is also seen as a critical test of investor confidence in both the government’s privatization program and the capacity of the local capital markets to absorb mega-listings.”

Broader Context: Kenya’s Capital Markets Evolution

The KPC offering comes at an interesting inflection point for Kenyan capital markets. The Nairobi Securities Exchange has experienced a sharp rally over the past year, with the NSE All-Share Index rising more than 50%, outperforming the MSCI Frontier Africa index. This strong performance creates a more favorable backdrop for new listings than would have existed even 12-18 months ago.

The offering also represents Kenya’s first large-scale electronic IPO, with the combination of traditional broker channels, online banking platforms, and the Ziidi Trader mobile application creating multiple access points designed to maximize participation. Market infrastructure has evolved significantly since the 2008 Safaricom IPO, which in local currency terms raised just over Ksh50 billion but remains larger in dollar terms due to the shilling’s subsequent depreciation.

Despite improvements in market infrastructure, retail participation in Kenyan equities remains surprisingly low. While over 1.4 million investors are registered on the NSE, only approximately 61,000 — less than 4.3% — actively trade. This chronic liquidity problem reflects both accessibility barriers that Ziidi Trader aims to address and deeper issues around investment education, risk perception, and expected returns relative to alternatives.

The government hopes the KPC IPO will attract up to two million retail investors, which would represent a transformative expansion of the investor base. However, achieving this goal requires not just making access easier through technology, but also convincing skeptical investors that the risk-return profile justifies deployment of scarce capital into equities rather than safer alternatives like government bonds or money market funds.

The Final Countdown

As the February 19 deadline approaches, all eyes are on whether Treasury CS Mbadi’s confidence in a last-minute surge will prove justified or whether the government will face the embarrassment of a significantly undersubscribed offering for what was designed to be a flagship transaction demonstrating Kenya’s capital markets sophistication.

The fundamental challenge remains the valuation gap between what the government seeks and what independent analysts believe the shares are worth. For many potential investors, the question is not whether KPC represents a sound business — most acknowledge its strategic importance, operational strength, and cash-generation capabilities — but whether the Ksh9 share price offers sufficient upside to justify the risks inherent in any equity investment.

The outcome will have implications far beyond this single transaction. Success would validate the government’s privatization strategy and potentially pave the way for additional state asset sales. It would also demonstrate that mobile technology can indeed democratize access to capital markets in meaningful ways. Failure or partial success, conversely, could undermine confidence in Kenya’s ability to execute complex capital markets transactions and force a rethinking of both valuation approaches and distribution strategies for future offerings.

For now, the clock is ticking, and the government is counting on Kenyans to rush in before the window closes on what has been billed as a once-in-a-generation opportunity to own a piece of Kenya’s energy infrastructure backbone.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

18th February, 2026