The highly publicised Kenya Airways rights issue closed a week and a half ago. For keen investors it would be worthwhile to note the trend the share has been following over this duration.

If we consider the performance of the counter before, during and after the rights issue we observe the following trend:

[caption id="attachment_6470" align="alignleft" width="616" caption="Image sourced from www.bloomberg.com"][/caption]

Before the rights issue the share was struggling to trade at the rights issue price of KES 14 per share, during the issue the share traded above KES 14 and attained a high of KES 14.95 just before the issue closed. After the issue the share has traded above KES 14 but at a constant decline. As at the close of business yesterday the share registered a 1.02% loss in value to close at KES 14.65, 15 cents lower than its opening price.

If we look more specifically at the performance of the share over the last one week we observe the following:

[caption id="attachment_6471" align="alignleft" width="615" caption="Image sourced from www.bloomberg.com"][/caption]

The steady decline in the value of the share is clearly visible. On the 2^nd of May the share was trading at KES 14.80 per share and in 3 trading days it has fallen to KES 14.65 per share.

We can hypothesize that this may be due to the following:

• Investor interest and demand for the share waned as the opportunity to buy new shares at a lower than prevailing market price, as was the case over the duration of the rights issue, is gone.
• The market is bracing itself for the dumping of the new share once they are assimilated to trading at the NSE. In anticipation of this increased supply the share price is falling to entice demand and create demand-supply equilibrium.

This may mean that investors expect KQ to announce that the rights issue was undersubscribed and in anticipation of this demand for the share has declined putting downward pressure on the share price since the market may be flooded with shares that are listed but not bought.

To understand this, consider a milk glut. This is a situation whereby the supply of milk is much more than the demand. To ensure that the extra milk is sold the price will decline to a level where consumers are willing to buy more milk than they would otherwise buy. This may what be happening  to the KQ share.